Crypto Exchanges Are ‘Marketing Against Their Clients’: Gensler

  • SEC Chairman Gary Gensler is concerned that cryptocurrency exchanges are not acting in the best interests of customers.
  • “In fact, they are trading against their clients often because they are marking the market against their clients,” he told Bloomberg.
  • The SEC chief previously warned that crypto exchanges are blue chip client operations.

Securities and Exchange Commission Chairman Gary Gensler said that cryptocurrency exchanges are “mixing” services, which could be against the best interests of their clients.

The SEC chief warned that the lack of separations between services such as custody, market making and providing a trading platform leaves clients vulnerable.

“Crypto has a lot of those challenges: Platforms go to market before their customers do,” Gensler told Bloomberg on Tuesday. “In fact, they are often trading against their clients because they are pitting the market against their clients.”

Some tokens like Binance, USD Coin and Tether, which are stablecoins pegged to fiat currencies like the US dollar, are closely tied to exchanges, he added.

“I don’t think it’s a coincidence,” Gensler said. “Each of the big three were founded by the trading platforms to facilitate trading on those platforms and potentially avoid AML and KYC,” or know-your-customer, anti-money laundering protections.

Coinbase, Binance and Bitfinex, which is connected to Tether, did not immediately respond to Insider requests for comment. Binance referred Bloomberg to a blog that says its stablecoin follows “strict guidelines and remains transparent with the user community.”

Gensler has previously warned against trading crypto exchanges ahead of their client orders, a practice known as front-running.

He told the Financial Services and General Government subcommittee in May 2021 that lead is a problem on crypto exchanges and advocated similar protections given to Nasdaq listings on traditional markets.

“Without a cop on the road and some rules of the road, market participants can preempt your commands,” Gensler told the House subcommittee.

Gensler previously said that blockchain technology possessed the tools to be a “catalyst for change.” But he has recently been a vocal critic of cryptocurrencies and has consistently maintained that cryptocurrencies are under the guidance of the SEC and therefore should be regulated as such.

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