The nascent cryptocurrency industry is awash in minuscule, unlicensed, unregulated, garage or basement based poorly secured exchanges that generally have little to no customer service. Such exchanges have poor security and regularly get hacked causing increased market volatility when the hackers dump their ill-gotten gains into the market at low prices, and retailers dump their holdings out of fear. This situation cannot continue if a public exchange traded fund is to ever happen. The point here is that the crypto-industry needs to begin to self-regulate or regulatory bodies will come down like a ton of bricks, as well they should.
Investors need to wise up and research where they are placing their money. They need to conduct due diligence and research into a given exchange. There are copious reviews available for even the smallest exchanges, and if there aren’t well then they shouldn’t be the first to be dumb enough to dump their holdings into a black hole hoping to see 1000x returns. Retailers completely fail to understand that many or most of the smaller exchanges are unquestionably practitioners of the “pump-and-dump” scheme, wherein they will obtain a significant share of a new token and artificially limit the supply traded for a short period of time sufficient to dump their holdings, pocket a huge sum then release the rest of the garbage tokens dropping the market and leaving most retail investors stuck with worthless coins.
Small exchanges are unaccountable for losses stemming from data breaches and frequently fail to properly secure and account for their assets. Many recent hacks have adversely affected the market far more than the actual amount of a given loss. This is assuming that the hacks were a result of 3rd party nefarious activity and not from exchange insiders, which is always a substantial risk since they can simply close up shop, rename the exchange, switch domains, and have plenty of retailer investors who don’t know a crypto token from an arcade token ready and willing to deposit all their holding for another round in Vegas.
This is the area where regulators should focus most, as the crypto market will not stabilize until unregulated micro-exchanges are put out of business. If people aren’t sufficiently educated or aware to avoid such obviously shady endeavors, regulators need to step in. This crackdown should not include reputable large exchanges which properly address investor concerns, secure investor funds, and provide a valuable liquidity service to the market similarly to Nasdaq or NYSE. Reputable exchanges conduct intense diligence with respect to the coins they list and behave similarly to publicly traded companies. They have boards of directors, advisors, developers, customer services reps, reputable American legal counsel, and provide financial disclosures. To list new crypto-coins they require legal opinions, research the team, the platform, the use cases, and will not list useless scam garage tokens.
Tulip mania is best combated using education, and such education should be the aim of the opinion makers and public figures of the crypto industry. It is their responsibility to STOP pushing useless projects for their own benefit that will go nowhere and for which there is little to no use case. Full disclosure begins with disseminating the reality that unregulated small exchanges are a burden on the crypto industry. These bad-actors need to be rejected by investors, and if they are incapable of doing so then they need to be shut down by local regulators unless they go through formal registration processes and prove that they are able to responsibly handle client funds.