Crypto markets on the brink amid mounting pressure from regulators

A swing to the downside has caught the attention of regulators, who are now being pressured to step in and prevent severe losses for investors.

It was reported on Tuesday that the U.S. Justice Department are investigating Bitfinex’s native stablecoin Tether, which has been cited alongside manipulation as a potential reason for last year’s parabolic rise in cryptocurrency prices.

According to a report in the FT, central banks and regulators are ‘contemplating how to rein in the industry’, which trades billions of dollars worth of daily volume without being monitored by regulators.

Christopher Woolard, Executive Director of the UK’s Financial Conduct Authority, said: “It’s clear strong and speedy action is necessary,” as regulators have been “concerned about the potential harm posed by current usage of these often poorly understood crypto assets”.

The Securities and Exchange Commission have also become more prevalent in the past week, issuing penalties to two ICO’s who failed to register as securities as well as charging Zachary Coburn, founder of crypto exchange EtherDelta, with operating an unregistered securities exchange.

The unregulated nature of cryptocurrency exchanges has led to these ventures making their own rules. Hong Kong-based exchange OKEX recently settled the Bitcoin Cash futures contract early, closing trader’s positions without warning.

“A comparable scenario would be Chicago Mercantile Exchange announcing that the S&P 500 E-Mini Futures contracts will settle and deliver tomorrow, but against the Shanghai Composite index instead of the S&P 500, in the midst of trading,” according to Amber AI, a cryptocurrency hedge fund, who estimate that traders racked up to $400 million in losses.

The Bitcoin Cash hard fork has been a contentious issue in the the cryptocurrency space this week. Powerful mining company Bitmain has been forced to reallocate mining power from Bitcoin to the Bitcoin Cash ABC, which has been one of the catalysts for the price moving to the downside.

Henri Arslanian, who is the chairman of FinTech Association of Hong Kong, said: “There has been a lot of uncertainty in crypto markets in the past week. It has been messy, public and has divided key figures of the crypto community”.

According to people familiar with the matter at least one cryptocurrency fund has made a complaint against OKEX to the SFC.

How the SFC will respond remains unclear. They did issue a statement earlier this month to say that exchanges would be able to apply for licences to trade ‘security-like tokens’.

Hoi Tak Leung, Counsel at Ashurt in Hong Kong, said: “SFC is improving its engagement with digital assets — but there’s a fair few aspects in the framework that may discourage exchanges from applying for SFC supervision without further discussions,”