The following article discusses the different reasons why regulation in crypto space is so important and urgently needed.

1. Fake Volume

Most readers are probably bored with this topic by now, because it was discussed so many times already. Nevertheless, i need to start with this argument. Everyone knows that the most popular site for checking market capitalization and volume is CMC, CoinMarketCap.

The big problem with this page is: Exchanges, which are listed on CMC, providing their data to CMC, but there are not enough mechanisms to check if the data, sent by the exchanges, is really true. Lot of smaller or newer exchanges providing fake volume to attract more attention. Of course, nobody want to trade on a new exchange with low liquidity and no volume. The bigger the spread, the more unprofitable the trading. So a lot of unregulated exchanges decided to provide fake volume.

If you take a look on the adjusted volume of exchanges on CMC, you will recognize that top of the list contains exchanges with massive volume, but nobody ever really heard of them. Everyone will agree that you would expect to see most famous exchanges like Coinbase, Kraken, Bitfinex or Binance with millions of users on top of the list. Weird and shady things goind on there...

2. Wash Trading and forced orders

This topic is another big problem in the crypto space. Even if the volume on an exchange looks real, you can't be sure if its real retail demand and supply or just wash trading and/or forced orders. Unregulated exchanges doesn't have mechanisms to prevent wash trading, so there is no way to identify if there is real interest in an asset or if there is just a person, the token issuer or even the exchange itself which try to manipulate the market or try to create artificially volume and demand.

There are several articles of token issuers out there which describe that they were forced by an exchange to fill the order book. Many exchanges have volume limits. If an asset fall below these limit for quite a while, the exchange consider to delist this token/coin. So the token issuer get asked to fill order books and create artificially demand.

Back in February 2019, there was a research which revealed that most of the exchanges have way less volume than they stated:
https://medium.com/crypto-integrity/fake-volumes-in-cryptocurrency-markets-february-report-fec9329f1f98

3. ICO & IEO Scams

The big ICO (Initial Coin Offering) hype in 2017 caused many people to lose a lot of money. A lot of companies launched their own token, most of them didn't fulfilled their promises or even went bankrupt. Some ICOs even turned out to be a scam, shortly after sale. Because there were no regulation, investing in ICOs was like gambling. There was a big hype because some people made huge amount of money with some projects and people started to get greedy.

Today, IEO's (Initial Exchange Offering) are the new ICO's. Instead of selling tokens through a website, token issuers pay exchanges to offer a sale on the exchange. Of course its an improvement, compared to traditional ICO's. Some exchanges require smart contract audits and several security checks before they accept to offer an IEO.

Of course its a new revenue stream for exchanges, so it didn't take long for this IEO model to reach terrifying proportions. Every small and shady exchange launched an IEO market and offer a few dozen IEO a month. Without regulation, its impossible to identify serious projects.

4. Exchanges scamming token issuers

The IEO topic leads us to the fourth point of my articles. If you search the web, you will come across articles of token issuers which describe how they got scammed by exchanges. 

Examples:

https://medium.com/@michael.freund/blabber-stops-idax-foundation-ieo-and-listing-9b2274d914aa
https://medium.com/@info_85454/idax-pro-scammed-crypto-projects-for-up-to-5-000-000-usd-c2d10a0dd14e

Exchanges are scamming issuers or using bots for IEO's to create artificially demand. There are a lot of relatively unknown projects whose IEO sale was sold out in a few seconds. If you observe the current market situation, you will recognize that there isn't much interest in altcoins or new projects at the moment. Too many people lost too much money already. Accordingly, everyone should become suspicious if the IEO of an unknown project on a small exchange is sold out in seconds. Manipulation and Pump&Dump are common after listing.

Regulated Exchanges should provide an unadulterated IEO without bots, combined with a controlled token distribution to prevent manipulation when trading starts.

Thank you for reading my article :)