Sheila Bair Comments On The Cryptocurrency Trading Markets’ Growing Maturity


Sheila Bair – The Cryptocurrency Trading Markets Is Now Mature

According to Sheila Bair, the crypto trading market has successfully transitioned from an era of anarchy and is now mature.

In an article posted on coindesk.com, Sheila noted that the early years of digital asset trading were typified by disorganization. Most of the participants were after short-term gains. In addition, there was regulatory uncertainty and a proper means of identification was absent.

The markets, however, have since matured. A significant number of exchange platforms are currently licensed and regulated by the relevant authorities in their respective markets. Similar to other investment platforms, regulated exchanges are obligated to conduct audits and comply with anti-money laundering regulation.

Another development that is expected to improve order in the crypto trading market is the recent introduction of Bitcoin futures. Because they are regulated by the CFTC, these futures contracts will cause the improvement of market surveillance techniques as well as the deployment of policies against the manipulation of investors.

The increasing participation of institutional investors in the crypto space is as a result of the aforementioned maturity. Although most digital currencies have an uncertain future, a majority of investors worldwide are starting to recognize cryptos as a genuine asset class.

The Challenges

The number might be increasing steadily, but the majority of institutional investors are still hesitant to delve into crypto trading. The SEC is seeking to ease the concerns about the risk of trading in digital assets by regulating platforms operating in that sector. Therefore, the recent disapproval of exchange-traded products (ETP) came as a surprise to the crypto community.

Before the start of the Consensus Invest meeting, the SEC chairperson, Jay Clayton, hinted that the commission might not be approving any crypto exchange-traded product soon. Clayton indicated that the SEC had doubts over the reliability of the crypto market surveillance techniques and the vulnerability of investor funds.

One of the roles of the SEC is ensuring that investor funds are secure. This involves enacting anti-manipulation policies. However, the commission is wrongly singling out cryptos as the asset class that is vulnerable to manipulation and hacking incidences. Instead, the authority should be assessing whether the security mechanism offered by the crypto exchange-traded products meet the minimum requirements.

How To Eliminate Manipulation

Currently, there is a huge disparity in the nature of monitoring and anti-manipulation policies enacted by various jurisdictions on the crypto space. Bitcoin, however, is less vulnerable to manipulation due to its widespread decentralization. Altcoins are particularly likely to be manipulated because their spot markets are concentrated in small zones.

The risk of manipulation can be mitigated by arbitraging between OTC trading decks and spot exchanges. Using this approach means that investors will not engage with people claiming to have insider knowledge regarding the most profitable assets. Rather, the aggregate supply of specific assets will be arrived at using a decentralized algorithm.

Bitcoin is not immune to manipulation. This is because it has limited liquidity and only a few individuals own most of Bitcoin currently in supply. To increase liquidity, the market is hoping for an increased influx of institutional investors, a process that is subject to the approval of ETP by the SEC.

Naturally, crypto exchanges will have to improve their surveillance and security mechanisms to safeguard the large investments brought in by institutional investors. The expensiveness of the ETP (reportedly 25 BTC per share) means that it will only be accessible to companies and high net-worth individuals. These groups are not as susceptible to manipulation as retail investors.

When enacting regulations, the SEC has to ensure that they remain realistic and achievable. This, in turn, would spur the involvement of more institutional investors in the crypto space, improving the standards in the sector.

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