
NY Attorney General Report on Crytpocurrency Market Integrity - chollida1
https://ag.ny.gov/sites/default/files/vmii_report.pdf
======
chollida1
The big takeaway for me was that coinbase not only trades on their own
exchange but accounts for 20% of its volume.

Coinbase went from being one of the "good guys" to being one of the "bad guys"
really quickly here :(

There is a reason that we dont' let the exchanges trade on their own markets
against their clients. It's a long learned lesson.

Especially because coinbase came out earlier and said expicilty that they
don't do this

[https://www.recode.net/2018/1/22/16911692/cryptocurrency-
bit...](https://www.recode.net/2018/1/22/16911692/cryptocurrency-bitcoin-
trading-coinbase-revenue-secondary)

> Coinbase makes money not on bitcoin’s price but on the volume of trades —
> charging both the buyer and seller usually a fee between 0.25 percent and 1
> percent of the total transaction size through the site. The company serves
> as both an exchange and a broker of deals, though it does not serve as a
> market maker that holds bitcoin

The NY AG has a tweet storm about this here

[https://twitter.com/NewYorkStateAG/status/104209855584926515...](https://twitter.com/NewYorkStateAG/status/1042098555849265152)

Question to the crypto currency community.

Who are the good exchanges now?

Where can you trade with any sort of assurance that the exchange isn't front
running you or using your order flow to trade against you?

I guess this is a good place to start

[https://twitter.com/dlauer/status/1042114043065126914](https://twitter.com/dlauer/status/1042114043065126914)

Also

> Circle reported that it accounted for less than one percent of the executed
> volume on its platform Poloniex during the most recent time period reviewed.

So the exchange backed by wall street was squeaky clean, while Coinbase comes
off looking pretty poorly from an ethics stand point, that's actually a shock
and pretty refreshing.

Though Wall street is alot more regulated and risk adverse so maybe that's not
too surprising.

~~~
gojomo
It's a bit hard for me to reconcile "twenty percent of executed volume on
[Coinbase's] platform was attributable to its own trading" with "[Coinbase]
does not serve as a market maker that holds bitcoin".

As far as I know, Coinbase has no investment vehicle which uses discretion to
speculatively move into and out of individual cryptocurrencies.

Instead, they sometimes collect their commissions in cryptocurrencies, and
they offer an index fund. To the extent they'd need to convert those
commissions to fiat to cover other expenses, or acquire/discard coins for the
index fund, those activities necessarily require buying/selling at market, but
offer limited opportunity for manipulation.

If the "20% volume" is from these necessary activities, it's not so
concerning, and (for example) forcing them to use someone else's market for
these activities would be silly.

~~~
askmike
> If the "20% volume" is from these necessary activities, it's not so
> concerning, and (for example) forcing them to use someone else's market for
> these activities would be silly.

I don't agree, if they need to hedge spot for their index there is huge value
in being the one that operates the venue. The activity is trading crypto and
there is always an incentive to do this at the best price (doesn't matter
whether you are providing liquidity, or hedging some exposure). Right now we
can only assume they do this "the fair way" (eg. how we can trade on their
platform - with the same information we have). But how do we know they are?
For all we know the guy that needs to execute these trades is sitting next to
another guy that is monitoring the exchange and everyone's stops / margin
liquidation prices.

~~~
gojomo
As an extremely-low-frequency user of Coinbase's services, I personally
wouldn't really care if, when they make necessary crypto trades to liquidate
commissions or maintain requested customer/index-fund holdings, they used
their proprietary position to get a slightly-better deal.

They have to make their profits somehow. And, the ultimate check on their
profits is competitive offerings. Thus a slight profit here may just help them
charge less elsewhere, in the fees I explicitly pay. (I can see how a
professional or high-frequency trader would feel differently, though.)

But, a further clarification from Coinbase has confirmed my skepticism of the
nefarious interpretation of the "20% volume" statistic. The 20% figure s
driven by trades at the direction of of customers, not for Coinbase itself.
See:

[https://blog.coinbase.com/correcting-the-record-coinbase-
doe...](https://blog.coinbase.com/correcting-the-record-coinbase-does-not-
engage-in-proprietary-trading-97e66145af6e)

~~~
captain_perl
There's a million ways for a crooked exchange to fleece clients, but front-
running is the most obvious and profitable way. If you're evaluating Coinbase,
then start there.

------
AdrianSetter
If the document changes for any reason, here is a immutable copy fetched just
seconds before writing this comment.

[https://ipfs.io/ipfs/QmQKAuCmjwpEjGp2V5bu4C533PDY1tuuen1vpBU...](https://ipfs.io/ipfs/QmQKAuCmjwpEjGp2V5bu4C533PDY1tuuen1vpBUGhdsjRm)

------
rossdavidh
I will probably get downvoted for this, but: I think there is a recurring
pattern here. Like discovering that absolute anonymity on the internet enabled
bad behavior, and pseudonymity allowed foreign governments (or just trolls) to
engage in duplicitous or offensive behavior more easily, it turns out that
many of the traditional "limitations" of government-regulated currencies, are
features and not bugs. I'm not saying there's no place for cryptocurrencies,
but they are clearly not for the average, non-technical, mom-and-pop operation
to use. They do not protect you from being abused by powerful institutions;
they make you more vulnerable to being abused by powerful institutions
(although perhaps different ones). If you are a technically savvy user or a
large organization, there could be valid reasons for using them, but in
general they are not a replacement for ordinary non-crypto currencies, and
that's not in spite of their freedom from government control, but rather
precisely because of it.

~~~
askmike
I agree with the points you make, but not the overall sentiment of your
comment:

Bitcoin does provide a level of privacy and self sovereignty that hasn't
really existed since cash. So i agree with your:

> (although perhaps different ones)

Powerful players can only play games with each other around the price. And if
you are a retail trader you might get caught up in this. But that's about the
only thing they can do, limiting the attack surface drastically.

I'm saying see cryptocurrencies more as an expression of freedom and less as a
place to dump all your savings into. Unfortunately too many people got that
backwards.

------
seibelj
This is a good overview of nitty-gritty details of exchanges that wasn’t
assembled before. If the purpose of the document was to scare people from
trading or purchasing crypto, I think it failed.

It is truly incredible that in 10 years cryptocurrencies are now worth in the
$100 billion vicinity. If you read HN regularly, not only should they be worth
0 but everyone with a neutral-to-positive opinion of them belong in jail.

Just like self driving cars, the HN opinion can be wrong to extremely wrong.

