Solidus Labs Launches Crypto Market Surveillance Tool in US

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Market manipulation is one of the main concerns the U.S. Securities and Exchange Commission has cited in rejecting a number of bitcoin exchange-traded fund applications.

Solidus announced Wednesday it was rolling out a market surveillance tool to monitor crypto exchange transaction data and flag potential manipulation across different platforms, as part of an effort to address ongoing regulatory concerns about crypto markets.

"These are issues that have been largely resolved in traditional markets through market surveillance systems [that] were designed for traditional markets," said Solidus Labs Chief Operating Officer Chen Arad. Proponents say an ETF would make bitcoin accessible to a wider swath of retail investors by offering a regulated product that would be available on major investment platforms, such as Charles Schwab or TD Ameritrade.

A number of ETF applications have been rejected by the SEC, which has said the bitcoin market isn't large enough to properly surveil.

Chairman Jay Clayton, who will leave the role at the end of the year, has said in the past that a bitcoin ETF couldn't be approved until the agency is confident the market was free from manipulation.

In 2019, the agency rejected Bitwise's effort, saying there needed to be a surveillance-sharing agreement between an exchange and a market of "Significant" size as one potential example of how to address this concern.

Solidus' system then processes the information, comparing buy and sell data to look for potential wash trading or other forms of market manipulation.

Part of this processing includes comparing market information from accounts on one exchange to its "Neighbors," meaning accounts with similar attributes, said Solidus CEO Asaf Meir.

Solidus is in discussions with a number of crypto exchanges and regulatory agencies to begin operating its surveillance tool in the U.S., though Arad and Meir declined to identify potential clients on the record, citing ongoing discussions.

The company has already helped contribute to a section on market manipulation in an upcoming manual the division plans to publish, he said.