The NY A.G. Report on Crypto Explained

Understanding the Virtual Markets Integrity Report

The New York Attorney General (the “NY A.G.”)  created a consumer report on cryptocurrency with the help of some crypto exchanges who operate in New York. We explain the report.^[1]

You can find a copy of that report on ag.ny.gov.

The background of the report is this:

1. The Attorney General of New York requested information from U.S. crypto exchanges to better provide customers insight into their workings.
2. Most exchanges complied, but a few didn’t.
3. Bitfinex (operated by iFinex Inc.), bitFlyer USA, Inc., Bitstamp, Ltd.,2 Bittrex, Inc., Coinbase, Inc., Gemini Trust Company, itBit (operated by Paxos Trust Company), Poloniex (owned by Circle Internet Financial Limited), and Tidex (operated by Elite Way Developments LLP) all complied.
4. Binance Limited, Huobi Global Limited, Gate.io (operated by Gate Technology Incorporated), and Kraken (operated by Payward, Inc.) did not.The general reasoning they did not comply wasn’t necessarily because they have something to hide, it was because they claim not to allow trading from New York (and to a degree also didn’t want all their competition having access to their data by making it public). I would read it more as a rebel thing (clearly Kraken is taking that stance) and not an issue with their quality.
5. That said, the AG office didn’t take kindly to the rejection referred Binance, Gate.io, and Kraken to the Department of Financial Services for potential violation of New York’s virtual currency regulations.

Anyway, the end result is that many exchange did comply and now we have a report that shows the inner workings of some major crypto exchanges.

The report is long enough that I can’t sum up everything they talked about. So barring reading it for yourself I would make the following points:

1. The report is generally negative. There isn’t a section on how great exchanges are and how it makes sense that this young industry would need to work some kinks out, it sort of digs right into the problems and stays in that mode.
2. Page 5 has key findings, this is the gist of what you need to know.
3. To sum up the key findings, 1. exchanges have potential conflicts of interests (most exchange operators and their employees are also involved in other aspects of crypto, like trading and investing), 2. there isn’t a lot of protections against manipulation built into these systems yet, and 3. there isn’t generally a ton of customer protections and safeguards (for example if your account gets hacked, it is game over for you).

The rest of the report goes onto discuss fees, bot trading, margin trading, conflicts of interest, customer protections, etc.

Again, I really can sum this whole thing up, as it is long and specific, but that is the gist.

The last thing to note is that there has been a lot of misinformation going around based on the report. For example a rumor that 20% of Coinbase trading is done by Coinbase. That isn’t true, 20% of their trading is done on behalf of people who buy via Coinbase’s Coinbase Consumer platform (the app one that everyone uses). Essentially a customer hits buy or sell and Coinbase makes the trade and then fills their order (so casual users don’t have to place orders on the books like one would do in Coinbase Pro). Likewise, Kraken is getting flak, but they have long taken a stance that they don’t want to comply with NY and have purposefully avoided doing so for years.

All the drama and tone aside, the report is helpful as a consumer… and that is the point. Just be careful not to get thrown off by the focus on the negative.

1. A.G. Underwood Issues Virtual Markets Integrity Report, Finding Many Platforms Vulnerable To Abusive Trading, Conflicts Of Interest, And Other Consumer Risks. ag.ny.gov