Cryptocurrency Exchanges At Risk Of Manipulation

A bitcoin mine in Sichuan province China

A report from the state of New York's attorney general has revealed that most exchanges do not have basic consumer protections in place, leaving them vulnerable to manipulation. Now, after months of investigation, the New York Attorney General's office has made its findings public.

In the aforementioned report, Underwood claimed that Binance, Kraken, Gate.io, three leading platforms in the cryptosphere, could be in violation of a series of cryptocurrency-focused regulations and rules, and as such, they should be referred to the New York Department of Financial Services (NYDFS).

"Many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges", state Attorney General Barbara Underwood said in a statement.

Notably, the report said that Binance, Gate.io and Kraken had been referred to the state's Department of Financial Services after an investigation into whether those exchanges are operating in ny. Interestingly enough, the aforementioned exchanges had refused to provide information to regulators on a previous date, which might have led to the filing of this potentially incriminating report.

Former New York Attorney General Eric Schneiderman started the Virtual Markets Integrity Initiative program in April and requested information from a number of exchanges specializing in bitcoin and other cryptocurrencies. Neither of the three exchanges has commented on the news yet.

Kraken, the only one of the four based in the USA, was the most vociferous in its refusal to respond to the inquiry, calling the initial request "ill-prepared" and "an overly broad fishing expedition that asks questions irrelevant to the stated objective and misses obvious questions that actually would be helpful".

The NYAG's office found that some exchanges could quantify how much trading activity on their platforms came from their own operations.

The attorney general concludes the report with a list of eight questions that exchanges should be able to confidently answer.

However, four platforms-Binance, Kraken, Gate.io, and Huobi-declined to participate, sparking an investigation into whether or not they now accept trades within the state.

What is more, there is often no way to monitor suspicious trading across multiple platforms, and "few platforms seriously restrict or even monitor the operation of 'bots, '" the report states.

The report also said there are "pervasive" conflicts of interest among the exchanges. The report notes that the platforms that refused to respond are based outside of the US and may not disclose all order types offered to certain traders, labeling Kraken's rejection of initiative participation as "alarming". The final major problem identified in the report is that cryptocurrency exchanges have limited protection of customer funds, with no generally accepted methods for auditing virtual assets. "That makes it hard or impossible to confirm whether platforms are responsibly holding their customers' virtual assets as claimed".

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