The U.S. Securities and Exchange Commission has launched a thorough investigation into whether cryptocurrencies have adequate safeguards to prevent insider trading on their platforms, FOX Business reported.
According to a person with direct knowledge of the investigation, the SEC sent a letter to a major cryptocurrency exchange requesting information on how the platform protects users from insider trading provided through its network, but this person believes that the investigation also includes other exchanges. .
The letter was sent after last month’s collapse of the UST’s stable US currency and the government token LUNA, when about $ 40 billion worth of investor wealth was removed. It is unclear if other letters have been issued, but the person with direct knowledge said that based on a conversation with industry experts, the investigation is extensive.
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The SEC declined to comment. Press officials from the two largest cryptocurrency exchanges, Binance and Coinbase, declined to comment. FTX and Crypto.com press officers did not respond to numerous requests for comment.
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It has not been determined whether the investigation is conducted by the SEC’s enforcement division or the Office of Inspections and Compliance Examinations, which usually conducts preliminary examinations of areas of regulatory interest. An investigation by the enforcement division would indicate that the SEC is concerned about possible serious regulatory violations.
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The move comes amid another massive upheaval in cryptography and increased scrutiny by regulators over the nascent market. In recent weeks, the crypto market has been in fusion mode; the price of Bitcoin, the most popular digital currency, has lost almost a third of its value in the last week and has fallen by 70% since its all-time high in November.
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The global value of the cryptocurrency market has fallen below $ 1 trillion. Amid the turmoil, the SEC stepped up its oversight of whether cryptocurrency users sold coins and tokens before the riot and used their positions and the advantage of information they could have to trade through declines and profits.
Immediately after the implosion of stablecoin UST and its sister token LUNA in May, SEC President Gary Gensler pointed to the cryptocurrency exchanges, accusing them of trading against their clients. In an interview with Bloomberg, Gensler said he was concerned that cryptographic exchanges are not putting proper walls between the different parts of his business (i.e., market creation and trading services) as traditional exchanges are required.
It is unclear whether insider trading statutes, designed to prevent insiders from trading profitably with non-public material information, may extend to a market where digital currencies may not be legally designated securities.
But the SEC under Gensler may not be waiting for the legal precedent to begin enforcing inside information rules on cryptography. Several recent media accounts have detailed that anonymous cryptocurrencies users buy and sell their digital currencies before market change announcements.
“A request for more information from the SEC on cryptographic exchanges would make sense given the SEC’s recent emphasis on regulating exchanges, apparently in the name of consumer protection,” said Jeremy Hogan, a partner at Hogan & Hogan’s law firm. There have been allegations of people buying large amounts of tokens that were going to be listed on an exchange (which would increase the price) but whose list was not yet public knowledge, and that is the kind of negotiation the SEC could be warning of the exchange they need. to control “.
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The SEC may also want to show that it is aggressively regulating a market that is ready for a massive correction.
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Celsius Network, one of the largest cryptocurrency lenders managing about $ 11 million in assets, told users Sunday night that it was pausing all withdrawals, exchanges and account transfers due to “extreme market conditions.” The announcement sparked panic as concerns about Celsius liquidity were raised, prompting a major liquidation of the entire cryptocurrency.
Adding to the selling pressure, Coinbase, BlockFi and Crypto.com have announced major layoffs over the past 24 hours in an effort to reduce costs as they prepare for what has been coined as a “cryptographic winter” by the Winklevoss Twins, who run Gemini Trust Co.
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In addition to the consultation letters, Gensler also called on cryptographic exchanges to voluntarily register with the commission to avoid being penalized for selling unregistered security tokens. The problem is that current laws make it difficult to determine which tokens constitute securities, and so it is difficult to know which exchanges operate outside of compliance.