In this week’s In the FICC of It podcast I mention how I like my hedge funds to be a bit “crazy” and my colleague and fellow podcaster, Galen Stops, suggested if I want to live on the edge then I should look at crypto funds. He’s right. If ever there was a crazy world, it’s crypto-land and this week highlighted this with some fantastic instances of “dolly out of the pram” tantrums!

It would be remiss of me not to give a shout out to Justin Slaughter of Mercury Strategies, who got this onto my radar via his Twitter feed, I would also refer you to Galen’s excellent story for more background. 

Basically though, the New York State Attorney General’s office put out a questionnaire to crypto trading platforms and the responses highlighted potential conflicts of interest, a lack of action over abusive trading activity and limited or illusory customer fund protections.

Now putting aside questions (raised by Justin) over whether the NYAG is over-reaching by trying to regulate the entire US crypto market, these seem to me to be legitimate and important concerns – they certainly are not tolerated in other markets.

The report also highlights how some platforms did not participate in the survey, mainly they said because they did not operate in New York State and didn’t have customers from there – fair enough, that is their right, although I am not sure it’s the best look, refusing to answer questions from a regulator.

Dummies started to be spat, however, when the NYAG highlighted the “public” response of one venue – Kraken. The report states, “…The Kraken platform’s public response is alarming. In announcing the company’s decision not to participate in the initiative, Kraken declared that market manipulation “doesn’t matter to most crypto traders” even while admitting that “scams are rampant” in the industry.”

I guess my first response would be to agree that manipulation doesn’t matter to “most” crypto traders, but that could be because they are ignorant it is taking place (which is their own fault). More importantly, it does matter to some traders, and that is enough to require some sort of action be taken. 

Probably 90% (that is a total guess on my part) of FX market participants don’t use the WM Benchmark Fix, but that doesn’t mean we didn’t need to investigate attempted manipulation. The same goes for spoofing in futures contracts.

Kraken objected to the inference that because it didn’t take part in the survey it is being presumed guilty and that seems fair, but this is not the first time that a firm or individual has been presumed guilty in the US – look at the instances of the Federal Reserve banning FX traders while they were involved in legal actions both as plaintiff and defendant.

Either way, the toys well and truly left the pram as the very public spat intensified (and I have to say it was very enjoyable to watch!)  

Kraken then tweeted, “Thanks to the NY taxpayer for funding this research – saved our product team a lot of time, and we got some interesting non-public info on our competitors.”

Kraken CEO Jesse Powell, increased the stakes by tweeting, “NY is that abusive, controlling ex you broke up with 3 years ago, but they keep stalking you, throwing shade on your new relationships, unable to accept that you have happily moved on and are better off without them #getoverit.”

The firm then made some vague accusation regarding the timing of the report’s release (the day before the Cboe contract expired), asking, “Who traded on insider information and what is being done to prevent manipulation by @NewYorkStateAG employees?”

So, all good knockabout fun as they say, but it does raise one or two questions – which hopefully will be addressed in the first session on the second day of Forex Network Chicago next week – the very timely entitled, “Does Crypto Need a Code of Conduct?”

Last week in this column I noted how Deutsche Bank had stared down a lawsuit, and the FX Global Code, especially its guidelines around transparency and disclosure, may help the industry going forward to avert further action. In the crazy world of crypto, it’s not so much staring the regulators down, it’s more “let’s poke the bear” and see what happens!

In such an environment, I am not sure how much value a Code of Conduct can have, but will be interested to hear peoples’ thoughts next Wednesday morning – and then I can think about investing my hard earned dollar in a crypto fund – it certainly seems crazy enough!

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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