Singapore-based digital asset exchange Crypto.com recently announced shutting down its institutional services in the US citing “limited demand” after SEC’s crackdown on Binance and Coinbase.
But a new report by the Financial Times detailing the existence of proprietary trading and market-making teams in the exchange has raised eyebrows.
Typically, market making and prop trading are usually conducted by separate private entities. But in Crypto.com, internal traders have existed since its inception in 2016.
People with knowledge of the situation claim that its executives made “absolutely dramatic sworn statements that Crypto.com was in no way involved in trading” to other, external trading houses, and that staff members were asked to “say there is no internal market maker type operation.”
These revelations could invite potential litigation as one of the allegations levied by the SEC against Binance in the recent lawsuits was using a trading firm to engage in “manipulative trading that artificially inflated the platform’s trading volume”.
Earlier this month, SEC chair Gary Gensler blasted cryptocurrency trading platforms for running a variety of operations internally.
“These trading platforms, they call themselves exchanges, are commingling a number of functions. In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets,” Gensler told CNBC.
Crypto.com Says Its Internal Market Team Is “Not A Controversial Practice”
In response to the latest report, Crypto.com denies encouraging its employees to mislead other market players. The firm also downplayed the role of internal market teams saying “It’s not a controversial practice.”
However, the exchange confirmed the existence of a company-owned prop desk that trades on its own exchange and other venues with the sole motive of making money “and not facilitating an exchange.”
On the other hand, the market-making desk’s priority is to “continuously improve order book liquidity and lowering spreads as it results in a more efficient market for all participants.”
The trading firm added that “participants on the platform, including market makers, are treated equally,” and that it “does not rely on proprietary trading as a source of revenue.”
Another intriguing aspect made by FT was that Crypto.com publishes accounts in various countries, including Malta, which do not show revenue by business line.
At the time of writing this post, the firm has not yet released any formal statements, users have urged crypto platforms to be open and honest with their consumers about their trading methods and standards.