Journalists reveal secret prop-trading unit at Crypto.com

The Crypto.com platform organised a prop-trading division, whose employees pledged not to disclose details of their work. The Financial Times reports this, with reference to informed sources, by the Financial Times.

In most markets, market-making alongside prop-trading is conducted by organisations not affiliated with the platform.

The company aimed to conceal such activity.

Crypto.com denied any linkage that would breach standards between internal trading, framed as market-making, and the platform on which client trades are executed.

“Crypto.com places internal and external market makers on a level with those who help tighten spreads and improve market efficiency. This is not a prohibited practice,” the press office said.

Staff explained that the app focused on retail investors generates the bulk of the firm’s income, where the firm acts as broker.

“We are risk-neutral by hedging these positions across a number of venues, including Crypto.com itself,” the company added.

The Financial Times noted that such phenomena have been common in the crypto industry. As examples, journalists cited BitMEX and Binance. They noted that critics of such business models have recently intensified their stance. The latter points to conflicts of interest due to the potential front-running of the exchange against clients.

In the SEC’s lawsuits against Binance and Coinbase in June 2022, the regulator pointed to the integrated model of both platforms.

“Coinbase brings together three functions that are typically separated in traditional securities markets — a broker, an exchange and a clearinghouse,” the document says.

In response to the suit, the representatives of the American platform declined to change their business model.

Earlier, SEC Chair Gary Gensler named the crypto market centralized. The official warned of possible enforcement against unregistered bitcoin exchanges.

Subsequently, the Commission head warned platforms about non-compliance with custodian status. The remark came in the context of the agency’s proposal to extend the 2009 rule on holding assets in cryptocurrencies.

To meet the status of a qualified custodian, the firm will need to ensure proper segregation of all assets, undergo annual audits by certified accountants, and take other steps to bolster transparency.

As reported, in 2022-2023, Crypto.com carried out several rounds of layoffs to streamline operations amid the crypto winter.