The Ledger paid a visit to the NASDAQ last week to hear how the exchange uses surveillance software to spot crypto cheats. High above New York City, a staffer explained how NASDAQ can spot spoofers, wash traders and other rogues who look to manipulate markets. It turns out that the type of hustles favored by crypto crooks are basically the same ones used by financial bad guys for many decades.
More interesting was NASDAQ telling the group of reporters it will only sell the software to reputable crypto shops, implying those who don’t buy it are minor league or just plain shifty. This is bunk, a source familiar with the exchange told us afterwards. NASDAQ will sell the software to anyone and their dog, they said, and the reason some don’t want it is because it’s not very good. In other words, what we witnessed may have been marketing to prop up a poor product.
All of this made me wonder if the big stock exchanges, NASDAQ and NYSE, are in the same position as the cable industry five years ago. Back then, TV executives still scoffed at streaming services like Netflix, arguing that no serious person would swap out their cable package for entertainment over the Internet. Today, even they will admit that so-called cord-cutters are upending their business.
In the case of the exchanges, NASDAQ and NYSE operate as a cozy oligopoly (much like the cable guys), piling on price hikes because they can. According to the Wall Street Journal, the big stock exchanges imposed over 400(!) fee increases in the last few years even as buyers complained they were adding little value in return.
The question now is whether anyone can break NYSE and NASDAQ’s stranglehold over the listings and data business—disrupting them the way the streaming companies disrupted the cable business. So far, there are flickers of a rebellion from upstarts like the IEX Exchange led by Brad Katsuyama of Flash Boys fame. Meanwhile, big Wall Street brokers like Morgan Stanley and UBS announced they are banding together to create a low-cost “Members Exchange.”
Then there are the big crypto firms like Coinbase, Binance and Circle. All of them are building trading infrastructure that could be adapted to offer traditional equities in the form of tokens. What’s more, their blockchain-based ledger systems would offer a faster and cheaper way to track and settle all the trades.
Taken together, the advent of these new players and new technologies could break the monopoly of the big exchanges in the same way the streaming services has shaken the cable industry.
On the other hand, monopolists are very good at guarding their turf, and it’s hard to see NASDAQ and NYSE letting anyone eat their lunch. Indeed, the two giants have so far succeeded in stopping a single company from listing on IEX. Meanwhile, NYSE is backing a crypto venture of its own that could help keep Coinbase and company out of its backyard.
As always, we like to hear your opinion. Do you think NYSE and NASDAQ will hold their financial forts now and forever? Or will others, including the crypto crowd, move in and turn them into dinosaurs? More news and nuggets below.
|Jeff John Roberts|
THE LEDGER’S LATEST
Two Hacker Groups May Have Stolen $1 Billion in Cryptocurrency by Chris Morris
Death Endangers Cryptocurrency Treasures: Plan Your Estate by Robert Hackett
To the Moon… Binance opens a fiat on-ramp, accepts credit and debit cards. President Trump’s former Interior Secretary pivots to blockchain. Fidelity’s Bitcoin custody service is coming in March. Crypto lending booms in the bear market. “Staking services as the new hot thing. IBM tracks oranges on the blockchain. Crypto hedge funds morph into venture funds.
BALANCING THE LEDGER
The Ledger’s Robert Hackett was in Davos where he spoke to three influential figures in the crypto world: Ripple CEO Brad Garlinghouse, Consensys founder Joe Lubin, and director of the Hyperledger Project, Brian Behlendorf. Watch to see them debate the meaning of decentralization, the future of blockchain and more.
Crypto had a record year…for scams: Crypto prices are still in a bear market and mining firms are on hard times, but crooks are still thriving. A CipherTrace report (via Reuters) says criminals made off with $1.7 billion in 2018 with the biggest losses befalling Japan and Korea. Some specifics:
-$950 million of the losses came from robbing exchanges and wallets
-$725 million was lost in exit scams, phony ICOs and other forms of fraud
-These losses to criminal activity were 400% higher than in 2017
MEMES AND MUMBLES
If this strikes your fancy, it’s available in two sizes: “Big Daddy” and “Step Daddy.”
FOMO NO MO’
Don’t miss out: The geekier corners of the crypto-verse are buzzing about something called “wrapped Bitcoin,” which is an Ethereum token pegged to the value of Bitcoin. This involves sending Bitcoin to middlemen via something called an “atomic swap,” who then conduct regulatory compliance and apportion the right amount of Ethereum. No, I don’t quite get the point of all this either, but Breaker mag makes a good stab at breaking it down:
To exchange their BTC for WBTC or vice versa, users must enter into a request with a WBTC merchant, someone who basically “sells” (or more accurately, distributes) WBTC to users in exchange for bitcoin (or bitcoin in exchange for WBTC) and go through KYC. These merchants act as a go-between for the user and the network’s liquidity pool, the custodians.
That merchant takes this request to a custodian, who will either deny or honor the request and mint or burn WBTC for the user. Minting and burning takes place directly between the merchant and the custodian through an atomic swap, a protocol that allows users to trustlessly trade assets cross-chain —in this case, BTC and WBTC.