Back in late 2018, something interesting happened when cryptocurrency exchange Coinbase listed a new decentralized finance (DeFi) token called 0x: It jumped from $0.65 to $1.08, and the Coinbase Effect was born.
This past September, crypto industry research firm Messari put the average Coinbase Effect bump at 91%.
Why? Coinbase was very slow to list new assets, and when it did, it performed a fair bit of due diligence — much more than most competitors. As a result, investors began seeing a Coinbase listing as a sign of quality in a market rife with fraud, initial coin offering (ICO) scams and price manipulation. So, when it announced it was listing a new coin, prices jumped hard.
That’s why its noteworthy that Coinbase is one of 17 exchanges, trading firms and investors that have gotten together to create the Crypto Market Integrity Coalition, or CMIC — a new industry association whose goal is to help cultivate “a fair digital asset marketplace to combat market abuse and manipulation and promote public and regulatory confidence in the new asset class.”
While the cryptocurrency industry is getting better at lobbying and dealing with regulatory agencies, the essential problem remains: Many regulators and elected officials still see a market ripe with manipulation and fraud, and with good reason. Back in March 2019, Bitwise asset management tried to win the Securities and Exchange Commission’s approval of a bitcoin exchange traded fund, or ETF.
To do this, it undertook an in-depth study that showed that 95% of the trading volume on industry price tracker CoinMarketCap was “fake and/or non-economic in nature,” as sketchy exchanges indulged in wash trading to attract customers with higher volume and influence prices.
Despite that, Bitwise Asset Management said, “the real market for bitcoin is significantly smaller, more orderly and more regulated than commonly understood.”
While its application was rejected by the SEC, Bitwise argued that by basing its pricing data on 10 honest exchanges — Binance, Bitfinex, Kraken, Bitstamp, Coinbase, bitFlyer, Gemini, itBit, Bittrex and Poloniex — it would be able to “mitigate the Commission’s concerns around market manipulation, custody, liquidity, pricing and arbitrage.”
Changing Times
While the cryptocurrency industry is getting better at lobbying — remember the 99 U.S. senators trying to insert a last-minute change the trillion-dollar infrastructure bill last August — the crypto market is still seen as extremely risky.
Read more: US Reps Hope to Amend Infrastructure Bill’s Crypto Rules
It’s a problem that led Gary Gensler, a former MIT cryptocurrency instructor and current chairman of the SEC, to call crypto the “Wild West” of finance, and Sen. Elizabeth Warren (D-Mass.) to complain that DeFi “regulation is effectively absent and — no surprise — it’s where the scammers and the cheats and the swindlers mix among part-time investors and first-time crypto traders.”
See also: Sen Warren Calls DeFi the ‘Most Dangerous’ Part of Crypto at Senate Hearing
What’s noteworthy about the CMIC is that its members say they want to actually do something about the broader crypto markets’ problems, as well as trying to convince the powers that be that there’s a good part of the industry that can be trusted.
Founded by Solidus Labs, a blockchain data and crypto market abuse surveillance firm, the CMIC members include exchanges Coinbase, BitMEX and Bitstamp, crypto market maker GSR, stablecoin issuer Circle Internet Financial and institutional custodian/bank charter-holder Anchorage Digital.
“Crypto is in a very different place than it was three or four years ago — there are crypto firms today with more robust and technologically advanced risk and compliance programs than traditional institutions,” said Asaf Meir, co-founder and CEO of Solidus Labs. “We want to convey that to the public, as well as our deep commitment to addressing current and future challenges.”
Is it going to work? Well, the CMIC has a steep hill to climb, but its noteworthy that a lot of the argument on Capitol Hill these days about regulating the cryptocurrency industry revolves around how best to do that without hindering innovation.
“For us to be the leader in the next generation of internet technology, we need a new regime built around the nature of digital assets,” Rep. Patrick McHenry (R-N.C.) told PYMNTS’ Karen Webster in October. “The current law and existing regulatory structures does not match the unique nature of those assets.”
Will it work? One hopeful sign this week was the SEC’s decision not to outright deny a pair of the current Bitcoin ETF proposals, instead asking them to show how they’d avoid market manipulation.
Related: SEC’s Request Suggests that Opposition to Bitcoin ETF May Be Fading
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More