In a recent statement, BitMEX CEO Stephan Lutz expressed his belief that crypto exchanges can operate without internal market makers, citing concerns raised by the revelation that Crypto.com has internal trading teams engaged in crypto trading activities.
The disclosure has sparked apprehension regarding a potential conflict of interest at Crypto.com.
Growing presence of external liquidity providers
According to BitMEX CEO Stephan Lutz, the presence of high-frequency traders (HFTs) and proprietary trading firms in the cryptocurrency industry can effectively replace the role of internal market-making teams.
Lutz believes that these external entities are capable of ensuring liquidity and bridging the gap between buyers and sellers during imbalances in the market. Lutz further highlighted that BitMEX itself had previously operated an internal trading entity called Arrakis Capital, serving as a major internal market maker.
Lutz reiterates the growing presence of external liquidity providers in the industry, reducing the necessity for internal market makers. The changing landscape and increased reliance on external entities have reshaped the role and importance of internal market-making teams.
The remarks come in light of the disclosure that Crypto.com operates internal trading teams, which has raised concerns about potential conflicts of interest.
However, anonymous sources cited by the Financial Times have alleged that Crypto.com’s trading desk is primarily focused on generating profits rather than facilitating an exchange.
These sources further claimed that the company had instructed its employees to deny the existence of an internal trading team and in-house market maker operations. These allegations raise concerns about transparency and potential conflicts of interest within Crypto.com’s trading activities.
Recently voiced concerns from Gary Gensler
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler recently voiced his concerns about the practice of commingling functions within crypto exchanges, emphasizing the need for separation.
Gensler drew a parallel to traditional finance, stating, “In traditional finance, we don’t see the New York Stock Exchange also operating a hedge fund, making markets.”
Gensler’s comments highlight the potential conflicts of interest arising from exchanges engaging in multiple roles simultaneously.
By pointing out the distinction between traditional financial markets and the crypto industry, he underscores the importance of establishing clear boundaries and separating various functions within the exchange ecosystem.
The remarks from the SEC Chair signify a growing focus on ensuring transparency, accountability, and market integrity within the evolving cryptocurrency landscape, and shed on light to the currency crypto crackdown.