Cryptocurrency Exchanges Have a Bot Problem

More oversight needed to combat fraud, says reportThe lack of or irregular regulation of cryptocurrency exchanges is an oft-cited reason for cryptocurrency's lack of mainstream acceptance, and the leeriness of even savvy investors to take the plunge.

"While established markets like the New York Stock Exchange monitor for illegal trading and punish rule-breakers, crypto exchanges vary widely in their surveillance efforts. Most crypto exchanges are regulated lightly, if at all. The result is that crypto bots can be used to execute abusive strategies on an industrial scale."

The report gathered information by sending letters to several cryptocurrency exchanges asking them to voluntarily disclose their practices, and while some did have policies in place to stop abusive practices like users opening multiple accounts, many still do not.

Earlier this year, we sent letters to major cryptocurrency trading platforms requesting key information on how they operate.

These strategies include executing buy and sell orders simultaneously from the same person in an effort to make it look like there's more activity on a certain currency than there actually is, called "Wash trading."

Once someone tries to buy that currency, the bot cancels the sell order, boosting the price of a certain cryptocurrency like Ethereum.

A similar tactic in the stock market called "Spoofing," where traders would use fake orders to trick their peers into buying and selling, was outlawed in 2010.Working to change the systemThere are forces working to change this behavior and bring more order to the crypto markets, however.

Regulated cryptocurrency exchanges built on the backbone of the current futures trading system are in development.

In an effort to crack down on shady investment and trading practices.

The U.S. Justice Department and the Commodities Futures Trading Commission are also investigating cryptocurrency manipulation, and the Securities and Exchange Commission is helping to crack down on investment scams, sometimes with help from inside the crypto trading industry.