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On Guard in Crypto

Tony Sio, Head of Marketplace Regulatory Technology, Market Technology @Nasdaq, says developing a crypto market regulatory framework takes time, so surveillance at the exchange and participant level is critical.

Bitcoin was originally created in 2009 to serve as a monetary system outside the controls of governments and central banks. For several years, regulators around the world tolerated issuance and trading activity, watching and waiting to see how this space would develop. By 2018, there were already more than 1,000 crypto-assets in existence, and the market has grown exponentially since then. At the start of 2020, more than 5,100 crypto-assets existed, with a total market capitalization exceeding US$250 billion, according to a European Parliament report.

The market has become too big for central banks and other regulators to ignore, especially considering the alarming number of cases where crypto-assets were used to commit fraud and money laundering. Central banks and regulators don’t want to stunt innovation, but at the same time, investor protection is a top priority. To this end, they’ve been working diligently over the last two or three years to create a legal framework that’s modern and accommodative but also prudent. Significant progress has been made in defining token types and uses, figuring out how they fit into existing law and developing a licensing structure. Some regulators have encouraged an open dialog with the industry and created sandboxes for firms to test their solutions.

Global organizations have provided valuable input as well. The Financial Action Task Force (FATF) has issued and updated guidance for preventing money laundering and terrorist financing through crypto-assets. In addition, the Financial Stability Board (FSB) recently published a consultative document on the regulatory issues surrounding global stable coins.

Regulators in many countries have made some kind of statement about crypto-assets, and you can view a summary here. Suffice it to say that some countries are more progressive than others. Crypto-assets still aren’t regarded as legal tender, except in Japan. However, a few countries – including Sweden, the Netherlands and China – are exploring the potential to launch an e-currency backed by the central bank. China initially prohibited crypto-assets, so the policy shift in that country is noteworthy.

Further, regulators have demonstrated their willingness to issue warnings, freeze accounts, penalize and even shut down non-compliant crypto-asset businesses. For example, China recently froze 4,000 bank accounts belonging to crypto-asset traders, and authorities in New South Wales, Australia made their first arrest relating to “non-compliant digital currency providers.

No doubt, the regulators will figure it out in time. But if crypto-asset exchanges and their participants want this market to succeed, they can’t wait for the regulatory process to run its course. They need to act now and take it upon themselves to ensure fairness, transparency and market integrity. The crypto-asset market is evolving rapidly. As these assets mature and become more mainstream, trading will likely become faster, and volumes will increase to the extent that humans alone will not be able to analyze events efficiently. Nor will they be able to rely on standard statistical techniques and data aggregation to uncover patterns of market abuse. Ultimately, the exchanges and participants that implement the same sophisticated surveillance processes and technology used by their traditional brethren are most likely to inspire public confidence and emerge as the market leaders.

Nasdaq Solutions

To learn more, download our Cryptocurrency Regulation Summary: 2020 Edition

Market Surveillance

Tony Sio


Tony Sio is the Head of Marketplace Regulatory Technology, Market Technology at Nasdaq, this includes responsibility for the Nasdaq Market Surveillance solution which is used by over 50 marketplaces and 17 regulators globally.

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