Contention has arisen over Cryptocom, the acclaimed cryptocurrency exchange, as the discovery of the platform’s internal trading activities sparks debate over potential conflicts of interest in the digital assets sector.
Emerging controversy at Cryptocom over internal trading
Operational out of Singapore, Cryptocom stands tall as one of the world’s top ten cryptocurrency marketplaces.
However, five insiders have revealed that the company engages in proprietary trading and market making, practices that are traditionally outsourced to separate entities in most markets.
In the typical exchange model, buyers and sellers are matched at the most competitive and transparent price. However, Cryptocom’s approach has strayed from this standard, drawing increased attention from regulators who are already scrutinizing similar practices at other digital asset exchanges.
In a recent action, the U.S. Securities and Exchange Commission (SEC) slapped Binance, the largest crypto exchange worldwide, with 13 charges.
The allegations included manipulative trading that artificially inflated the platform’s trading volume, carried out by a firm owned by Binance’s CEO, Changpeng Zhao.
SEC Chair Gary Gensler stated that while these platforms call themselves exchanges, their blending of several functions raises eyebrows.
The implications of proprietary trading
Cryptocom has operated since 2016, but the presence of internal trading teams was not widely acknowledged. Insiders have suggested that executives have adamantly denied involvement in trading activities to external trading entities.
On being questioned, Cryptocom retorted that there was no instruction to employees to mislead other market participants. The company affirmed the existence of an internal market maker, operating on the exchange and treated identically to third-party market makers.
The company went on to defend this as a non-controversial practice. Cryptocom stated that most of its revenue streams stem from its retail traders’ app, where it operates as a broker.
It further explained that the trading team ensures risk neutrality for Cryptocom by hedging positions across several venues, including the company’s own exchange. The platform is intended as a level playing field for institutional traders.
Facing the future amid regulatory scrutiny
Despite the burgeoning controversy, Cryptocom maintains that the proprietary trading desk’s primary goal is profit, not exchange facilitation. The market-making desk’s function, according to the company, is to increase liquidity on the platform.
The company underscored its commitment to improving order book liquidity and reducing spreads, aiming for more efficient markets. It further stated that platform participants, including market makers, are treated equally, and the company does not rely on proprietary trading as a revenue source.
Nevertheless, Cryptocom’s operations, which extend across countries like Malta, do not disclose revenue by business line. This absence of transparency continues to fuel the controversy.
In the backdrop of the SEC’s enforcement actions, Cryptocom announced its plan to shut down the exchange for institutional U.S. traders from June 21, citing limited demand in the current market landscape.
Despite the cloud of contention, Cryptocom, helmed by CEO Kris Marszalek and CFO Rafael Melo, has seen a dramatic rise in profile, backed by high-profile sponsorships and sports deals.
As the crypto industry navigates the complexities of regulation and transparency, Cryptocom’s journey ahead is a story to watch.
