Crypto.com, a Singapore-based cryptocurrency exchange endorsed by Hollywood actor Matt Damon, has come under scrutiny due to the revelation of its internal trading teams and potential conflicts of interest within the digital assets industry. This development raises concerns among experts and industry insiders regarding fair market practices and transparency.
According to a report by the Financial Times, sources with direct knowledge of the matter have disclosed that Crypto.com operates proprietary trading and market-making teams. In most traditional markets, exchanges are responsible for matching buyers with sellers at competitive and transparent prices, while separate private companies typically conduct market-making and proprietary trading activities.
Internal Trading Teams and Market-Making Activities
Regulators in the United States have already started cracking down on similar activities within the digital asset exchange sector. The US Securities and Exchange Commission (SEC) recently levied 13 charges against Binance, the world’s largest crypto exchange, including allegations of manipulative trading that artificially inflated trading volume. SEC Chair Gary Gensler criticized the mingling of various functions within trading platforms, stating that in traditional finance, exchanges do not operate as hedge funds or engage in market making.
The existence of internal traders at Crypto.com has been relatively unknown since the company’s establishment in 2016. However, Financial Times claims that Crypto.com executives provided false sworn statements to external trading houses, denying the company’s involvement in trading activities. Employees were allegedly instructed to deny the presence of an internal market maker operation.
In response to inquiries from the Financial Times, Crypto.com denied allegations of deception, clarifying that employees were not asked to mislead other market participants. The company stated that its internal market maker on the Crypto.com exchange operates on par with third-party market makers, ensuring tight spreads and efficient markets.
Crypto.com emphasized that most of its revenues are derived from its app for retail traders, where the company acts as the counterparty for transactions under a broker model. The Crypto.com trading team allegedly hedges positions on multiple venues, including their own exchange, to manage risk. The company claims that its exchange for institutional traders operates as a level-playing-field trading venue.
Conflicts of Interest and Market Integrity
According to Financial Times, insiders familiar with Crypto.com’s practices revealed that the proprietary trading desk engages in trading activities on the company’s exchange as well as other platforms, solely focused on generating profits rather than facilitating exchange operations. Additionally, the market-making desk aims to enhance liquidity on the venue.
Financial Times reported that Crypto.com had defended its practices, stating that all participants, including market makers, are treated equally. The company asserted that it does not rely on proprietary trading as a source of revenue and that its primary objective is to continuously improve order book liquidity and reduce spreads for a more efficient market.
As a private company, Crypto.com publishes accounts in various countries, including Malta, without disclosing revenue breakdowns by business line. The revelations surrounding Crypto.com’s internal trading teams have raised concerns about conflicts of interest and market integrity. Regulators and industry stakeholders will closely monitor the situation, highlighting the need for clear guidelines and separation of functions within cryptocurrency exchanges to ensure fair and transparent markets for all participants.
