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The Need for Effective Surveillance of Crypto Markets

Regulation around crypto is here, it is now, and like most regulations, it gets things right gradually. It starts big and broad, often with sweeping statements of intent, and then narrows focus as learnings are gained. As the crypto landscape continues to develop, regulators are continually adapting their approach to ensure that investors are protected while at the same time trying not to stunt innovation within the cryptocurrency ecosystem.  

In the U.S., the regulatory landscape is currently being driven by the Responsible Financial Innovation Act, which was recently introduced into the U.S. legislative process. Amongst many things, it designates the CFTC as the primary regulator for digital assets, with most crypto spot products falling under its definition of an ancillary commodity (as opposed to security). While there is a lengthy road ahead of it to become law, it is setting the scene for how crypto will be regulated. 

Not to be outdone, the European Union (E.U.) continues to press ahead with its Markets in Crypto Assets Regulation (MiCA) – aiming to establish a common regulatory framework across the 27 member countries. It includes provisions focused on market abuse, specifically calling out insider trading and “pump and dump” type schemes. Again, a bit of a journey to go before it becomes law (targeting 2024), but one to keep tracking as it evolves.

Questions still exist on how crypto generates value, how it trades, where it trades, and how information is distributed and accessed. And, as with all markets, there can be an imbalance between participants in terms of access to that information, technology and understanding of market dynamics.

Arguably, the history of financial market regulation has been about trying to address that imbalance and reducing the innate risk involved in every transaction so that it does not tip over into impropriety, manipulation, and fraud. Any market for any asset class is imperiled when that scale tilts in the direction of bad actors who seek to mislead and distort market signals. 

The good news is that on the trading side, surveillance technology is getting close to leveling the playing field when it comes to combatting manipulative trading behaviors. And while crypto is a demonstrably unique asset in many ways, when it comes to trading on an exchange, it still comes back to the tenets of supply and demand - matching buyers and sellers. 

Indeed, the crypto market is highly charged. For many of the coins, the order books are very deep and update constantly, moving and shaping, amending and deleting with periods of extreme volatility. To monitor this type of trading requires a surveillance solution that understands markets deeply and can deliver the necessary levels of data and oversight:

  • The ability to rapidly connect to and integrate market data feeds from a range of venues containing trades and multiple levels of depth. 
  • Given the rapid growth in crypto venues, it’s critical the solution and vendor have a proven ability to build out that infrastructure at scale. 
  • The power to re-create the order book on a message-by-message / nanosecond-by-nanosecond basis.
  • Having a package of alert scenarios that mine historical market data to generate benchmarks of what is “normal” activity at the coin, account, or trader level.
  • Capabilities around added data, insights and visualizations are crucial to empower analysts to make more informed decisions.

Regulation in crypto continues to evolve and is here to stay despite the historical lack of oversight in this space. And as with all markets, there is risk involved when it comes to bad actors and manipulation. It is in the best interest of all participants for a level playing field to be maintained, and trade surveillance technology is just the tool to do so.

To learn more about Nasdaq Trade Surveillance for crypto, click here.

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Michael O'Brien


Michael O'Brien is the Head of Product Management for the Sell-side & Buy-side Technology business at Nasdaq.

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