Crypto.com Trading Practices Called into Question

A recent report by the Financial Times revealed Crypto.com operates proprietary trading and market-making teams.

A report by the Financial Times revealed that Singapore-based crypto exchange Crypto.com has teams trading tokens for profit. Citing five unnamed people with direct knowledge of the company’s trading practices, the report indicates that the exchange operates proprietary trading and market-making teams.

One of the persons with direct knowledge about the exchange’s trading teams said executives at Crypto.com gave external trading houses “absolutely dramatic sworn statements that Crypto.com was in no way involved in trading.” Another person said employees at the exchange were asked to “say there is no internal market maker type operation.”

Crypto.com denied these claims and said employees were not asked to lie to other trading houses. The exchange conceded that it does have an internal market maker but said, “This is not a controversial practice.”

We have an internal market maker that operates on the Crypto.com exchange and that internal market maker is treated exactly the same as third-party market makers that identically facilitate tight spreads and efficient markets on our platform.

Exchange Revenue Is Derived from Its Retail Trading App

The exchange told media publication Decrypt that it does not rely on proprietary trading as a source of revenue, as the Financial Times reported. In an email, the exchange said:

This market making activity is a regulated practice, as long as there is a level playing field, i.e. all market makers have to follow the same ruleset, that assures market fairness & integrity.

The company further told the Financial Times that most of its revenue comes from its retail trading app, where the exchange was traders’ counterparty for transactions and which operated as a broker model.

As such, the Crypto.com trading team ensures that Crypto.com is risk neutral by hedging these positions on a number of venues, including the Crypto.com exchange, the exchange said.

One of the people familiar with the matter said the company’s proprietary trading desk trades on Crypto.com’s exchange and other venues. Another person added that the proprietary trading team’s sole objective is the make money “and not facilitating an exchange.”

The exchange’s trading practices have been called into question during intense regulatory scrutiny in the US. The SEC recently accused crypto exchange Binance and its rival Coinbase of securities violations. In response to the lawsuits, SEC Chairman Gary Gensler told CNBC:

These trading platforms, they call themselves exchanges, are commingling a number of functions.

He added:

In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets.

Crypto.com Shutters US Institutional Exchange Services

Following the news of the SEC’s lawsuits against Binance and Coinbase, Crypto.com announced that it would shut down its institutional exchange services for US customers. The exchange explained that demand is drying up due to the current market landscape in the US.

The company did not specifically reference the regulatory action, but it was undoubtedly a concern for the exchange.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.