Government regulators in the United States, China, Japan and South Korea are heavily scrutinizing cryptocurrency exchanges, leading to much uncertainty about the future direction of digital asset trading. One of the key enforcement areas, as demonstrated by the recent shutdown of blockchain platform Bitconnect, is fraud and manipulation.
There are already thousands of laws and regulations on the books for the trading of securities like stocks, but interest in cryptocurrencies exploded so quickly that regulatory bodies haven’t been able to keep up.
But what this week’s news from Japan regarding the world’s largest crypto exchange Binance shows, is that a widespread global shakeup is imminent. All exchanges will become targets for regulators, even if they are currently operating within legal guidelines for the exchange of securities.
The reason, of course, is that not all exchanges are on the up-and-up, and any serious money waiting on the sidelines will refuse to enter the market until some sort of regulatory framework is in place and fraud is investigated and prosecuted.
The following video demonstrates exactly the kind of trading behavior that creates a negative perception about cryptocurrency markets for the 100 million or so people waiting to invest into blockchain technologies.
In the video, a trader utilizing the Bitfinex trading platform explains how he creates leverage transactions with no intention of executing the orders. Ultimately, the goal is to create a false perception of price.
According to the trader, this is a common “strategy” within the “whale” world of cryptocurrency trading.
It’s not just a matter of manipulating the market… these are high level strategies that we employ using leveraging in the market…
There are people saying I am manipulating the market… but no guys… it’s just amateurs saying that to be honest… You guys have to understand that this is the fiercest competition in the world.
… I assure you with 100% certainty that I do not cross any ethical boundaries.
While we’ll let our readers decide for themselves whether the strategies being employed are ethical or not, the legal boundaries for such activity are clearly defined, at least for the trading of securities in the United States:
Dodd Frank Act Section 747
SEC. 747. ANTIDISRUPTIVE PRACTICES AUTHORITY.
Section 4c(a) of the Commodity Exchange Act (7 U.S.C. 6c(a)) (as amended by section 746) is amended by adding at the end the following:
‘‘(5) DISRUPTIVE PRACTICES. – It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that
‘‘(C) is, is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).
The video demonstration is below:
What do you think – is this trader engaging in “spoof trading” as defined by the Frank-Dodd Act?