To guardrail investors from the type of flash collapses that struck Binance’s US platform on Thursday, cryptocurrency exchanges must learn from the equities market.
According to Brett Harrison, Head of the cryptocurrency exchange, FTX.US. While FTX.US has implemented circuit breakers and other trading limitations, financial regulators have not imposed those measures, according to Harrison.
While the lack of regulator-imposed barriers is appealing to many crypto proponents, it also has consequences, as seen Thursday when the price of Bitcoin dropped to $8,200 in a single minute from about $65,000 on Binance’s US market.
“Those are all self-imposed based on the lack of an existing regulatory regime for spot crypto, Harrison said on Bloomberg’s “QuickTake Stock” streaming program. We need to establish good rules for crypto exchanges to exist in this industry and be able to provide similar kinds of safeguards that the existing equity exchanges and futures exchanges provide.”
Under the supervision of the United Staṭes’ Securities and Exchange Commission, equities exchanges have circuit breakers in place that temporarily suspend trade when prices fall too rapidly.
Such procedures are not necessary for digital-asset platforms. Because there is no central regulating organization for the cryptocurrency market, all trading restrictions and limits are applied on an exchange-by-exchange basis.
Because futures trade on regulated exchanges, the lack of such control may explain why the SEC felt comfortable permitting the first futures-backed Bitcoin exchange-traded funds to open this week but has yet to approve physically-backed funds, according to Harrison.
“When regulators are looking at the crypto markets now compared to, for example, the equity markets, they’re asking the questions, are these markets mature and do they have all the safeguards in place that allow for orderly execution?” Harrison stated. “It’s, for example, the reason why the SEC has been comfortable with futures backed ETF, but not yet a spot backed ETF.”