In this article I am strictly going to refute the claims made in the recent article by Crypto Kanoon titled “TRADING COMPETITIONS BY CRYPTO EXCHANGES VIOLATE COMPETITION LAW”.
I get it, you cannot win these competitions easily, we already established it in our article Strategies used by Winners in Trading Competitions, but the claim that they violate competition law is something I cannot get my head around. So I wanted to talk about the points made in the article and what I think of it.
Lets break it down:
The article starts with what seems like praises for exchanges for being so strict in self regulation that “opening a bank account is easier than to have a crypto account with Indian crypto exchange”.
Well, this is not the truth. Although accounts open in a jiffy in banks, accounts open as easily on exchanges with an Aadhaar card and PAN card. But this is not really important.
The article then tells us the expectation from exchanges, being fair that is
Crypto Exchange’s job is to provide a secure, fair and non-discriminatory trading platform for sale and purchase of digital assets.
I haven’t seen one competition where an exchange stopped trading for other coins while the competition is progressing.
A particular crypto for which the competition is running, gains higher volumes but the global markets don’t align to these competitions. If competition is on KEY tokens, and the global market for NEO is rising, will people not invest in NEO? Or if KEY prices are slumping, will people not sell it?
Another point made by the article:
Trading competitions, in the present form, are a tool to promote ‘Purchase’ of a particular Crypto currency…It gives undue advantage to the traded Crypto and on the other hand prejudices the interest of other digital assets.
Firstly the trading competition do not promote Purchase of a particular coin, it promotes trade – both Buying and selling. Secondly, the interest of digital assets lie in the technology they represent not the price they are trading at.
Let me put it this way, if the mall next doors is giving a small Colgate toothpaste free to everyone who buys a big packet of Colgate, does it jeopardise the global position of other toothpaste companies? Also, will I stop buying soap because I am getting free Colgate?
Even better example, if there is good ICO I want to invest in – I will liquidate my positions and buy ETH to invest in it. Is the competition restrictive? NO. All they do is increase trade volumes.
After quoting the section three of competition act 2002, the article goes on to say the following
The Exchanges are restricting the purchaser’s choice of trading whose purchase is then driven by his greed for reward/winning prize.
Again, it is not just purchasing, it is purchasing and selling both. Trading competitions are counting trades, not buys. Even in competitions that count the buy volume, they still allow you to sell. So its not purchase, it is a trade driven by greed. If I am selling, there is an equally greedy buyer who wants to increase their trade count.
Cryptocurrency trading happens between people, exchanges are not brokers, they don’t hold crypto and ask you to buy. They provide a platform where crypto is bought and sold by individuals. So the “greedy” are trading a coin but not really increasing any advantage for that coin in terms of price. The moment prices go above or below other exchanges, arbitragers will kick in and make a trade to stabilise it.
Cryptokanoon is saying that other cryptocurrencies are not being traded in a competition and that’s unfair. Cryptoassets which are trading on dozens of exchanges are not losing out because users on one of those exchanges are not trading on it.
Later on the article provides a very nice example:
BSE running a trading competition and promoting RIL shares. Our instant reaction would be negative and BSE and RIL both will lose credibility in the eyes of investors.
Let us get one string straight here. Exchanges like Koinex or Zebpay are not like BSE. To trade on BSE you need a broker in the middle while Crypto exchanges give the power to you.
The brokers that trade on BSE for you, DO ORGANISE COMPETITIONS. Zerodha used to do a 60 day challenge which refunded the brokerage fees of daily traders. Many platforms run trading competitions to test the strength of their platform.
BSE has been in existence for 145 years, you cannot compare an entity that huge with something that came into existence a few months ago in India.
The article then calls in support for the newbies who might accidentally believe an exchange is endorsing a particular coin and invest without due diligence.
The newbie will presume that if an exchange is promoting a competition of trading in a particular digital asset then there is an implied endorsement of the exchange for that digital asset.
Every crypto that is trading on exchange is trading there because the exchange has endorsed it. The exchanges are centralised entities that take a thoughtful decision before listing any crypto. So if it is on the exchange, it is by default an endorsement.
If a newbie is not reading terms and conditions, or not doing some research, asking around, and blindly trading a coin because there is a competition, it is possibly the gravest mistake of their life and it is only their fault.
Now, finally Crypto Kanoon made a point I have made in past too.
These competitions are also a method of promoting “Pump and dump” show as few investors with deep pockets can play around with buying and selling bids with multiple accounts on the same exchange.
Yes, wash trading is a problem. But think of any competitions, the heavy spenders have higher chances of winnings. If Pepsi is giving gift codes under its label, won’t the deep pocketed buy more Pepsi than your average Joe?
In terms of pump and dump, as I explained before, if there are deep pockets manipulating the price, there are arbitragers taking advantage of it. It is a free market, let the people fight it out.
When an exchange runs such competition, coins/digital assets with weak fundamentals get promoted and tomorrow these coins can exit the market as well.
The competitions lasts a day, a week or a month. I am repeating myself, these are trading competitions, people will sell their positions at the end of the competitions, there is no loss if a company decides to exit. Also, exchanges do due diligence before listing, if they didn’t do – Bitconnect will be trading on Koinex.
It is easier to think that competitions are unfair because not everyone can win them. It is also easy to blame the exchanges. But the competitions are bringing the volumes to exchanges, that is how they are surviving. The space is unregulated, we can only determine if the competition law is violated if the case goes into court. Until then, I can share my opinion, Crypto Kanoon can share theirs and you my dear readers can make your own informed decision.
I want to end this article with a disclaimer copy pasted from the article but also definitely applicable here:
Disclaimer – The views expressed in this article are personal and purely informative in nature.
Original Article on Crypto Kanoon can be read here.
You can read about all the trading competitions running currently here