Cryptocurrency

The SEC’s Crypto Market Manipulation Fears Make No Sense

The SEC’s Crypto Market Manipulation Fears Make No Sense
By Vin Narayanan
Date September 20, 2019
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I’m running out of patience with the Securities and Exchange Commission (SEC). And you should be too.

The SEC has been refusing to approve a bitcoin exchange-traded fund (ETF) for years because it fears the bitcoin market can be manipulated. And VanEck, a highly respected investment firm that has created dozens of ETFs already regulated by the SEC, just withdrew its very good bitcoin ETF proposal because it became clear the SEC isn’t ready to approve it.

The fear is nonsensical. Every market can be, and is, manipulated on some level.

You want proof? Look no further than this week’s news that the Department of Justice (DOJ) charged three J.P. Morgan traders (two current, one former) with manipulating the precious metals market (gold, silver, platinum, etc.).

Two of the three people charged are J.P. Morgan executives! The alleged market manipulation took place over the span of eight years. And the people who allegedly did the manipulating made millions of dollars.

According to the DOJ, the accused “spoofed” the precious metals markets to manipulate prices and to create profit opportunities. Spoofing is placing orders so it looks like there’s market activity and then canceling the orders before they’re executed. The fake activity tricks other traders into buying or selling when they normally wouldn’t. And when the trades are canceled, the market manipulators swoop in to take advantage of the traders who acted on the bogus information.

Spoofing is one of the chief concerns the SEC has with bitcoin and other cryptocurrencies. But you don’t see anyone trying to stop the trading of precious metals. So why is the SEC standing in the way of crypto trading?

Refusing to approve a bitcoin ETF or issue crypto regulations is intellectually dishonest. The same problems that the crypto markets face exist in other regulated markets. But because crypto is the new kid on the block, the SEC feels comfortable ignoring that.

I’m not against regulations. I’ve spent more than a decade working in highly regulated industries. I’m friends with some former regulators. I met at least a few of them when they were active. And the reason I’m friends with them is they’re smart, sharp and capable problem solvers.

These regulators didn’t look for ways to stop progress. Instead, they looked to create frameworks that allowed entrepreneurs to make things happen. I always appreciated that.

So when I think about regulations, I don’t automatically oppose them. And when I think of regulators, I don’t automatically think they’re obstructionist. I respect my friends too much for that.

But as a rule, I do insist on smart regulations and smart approaches to solving problems. Good regulations and regulators should be part of why a highly regulated industry succeeds.

Unfortunately, the SEC doesn’t share my vision. Instead of embracing change and new technology, it’s claiming that crypto isn’t ready for prime time because the market can be manipulated.

That explanation never made sense. And after the indictments of these three J.P. Morgan traders (and the August guilty plea of a fourth trader), that explanation is smelling pretty rotten.

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