On Tuesday, New York’s Attorney General’s Office published the results of its several months-long investigation of cryptocurrency exchanges. The 32-page report found that those exchanges remain vulnerable to manipulation, have not yet implemented protective measures used by traditional trading exchanges, and lack those traditional exchanges’ consumer protections.
The Virtual Markets Integrity Initiative Report based its findings on information provided by ten digital currency exchanges and said that the OAG could not confirm the information’s accuracy. It also noted that the responding exchanges may not be “representative of all trading platforms.” More importantly, the report acknowledged that the digital currency industry is “rapidly evolving” and exchanges are continually trying to improve their operations.
The report identified three main areas of concern, including potential conflicts of interest caused by platforms that engage in multiple lines of business, a practice that is typically “restricted or carefully monitored in a traditional trading environment.” In addition, the AG’s office highlighted the failure of some exchanges to take steps to protect the integrity and fairness of their trading platforms, leaving them vulnerable to potential “abusive trading activity.”
The third criticism was aimed at the exchanges’ inability to provide proper protections for their customers’ assets, noting that “trading platforms lack a consistent and transparent approach to independently auditing the virtual currency purportedly in their possession; several do not claim to do any independent auditing of their virtual currency holdings at all.”
The report avoided a blanker condemnation of the industry, however. Instead, it offered a cautionary note to consumers and a call-to-arms for the industry:
By highlighting these weaknesses, as well as other considerations important to consumers, the OAG hopes to educate customers, and to encourage the virtual asset marketplace to adopt policies that ensure the integrity of transactions. As the sector matures, the OAG expects responsible trading platforms – in coordination with consumer advocates, regulators, and law enforcement – to expand the transparency, security, fairness, and accountability of their businesses.