itBit’s Stance on Regulation and Risk Management

Having spent years researching and using digital currency exchanges as a trader and in light of the most recent market events, I wanted to provide itBit’s perspective on the current state of the industry.

Exchanges are going through significant changes today as they face new and uncertain regulation, unprecedented “growth stage” VC funding and a standardization of industry best practices. So what does that mean for the community and how does itBit stand out from the other exchanges?

Regulatory Compliance is the Foundation of a Quality Exchange

Looming regulation and oversight has caused a chain reaction within the industry. We’ve been seeing exchanges rush to create or update AML/KYC programs, and at times, they are requiring that previous clients provide new forms of KYC documentation. They are also closing accounts associated with high-risk and suspicious activity. In short, most exchanges are patching together regulatory and compliance programs on the fly.

At itBit, we have always placed an emphasis on compliance. Prior to our launch last November, itBit structured an AML/KYC program that was bank grade. Administered under the leadership of Chief Compliance Officer Erik Wilgenhof Plante, itBit has created a trading environment that leading financial and digital currency institutions can trust from a counterparty perspective. Digital currency exchanges must follow the same protocols as any other exchange, and therefore must properly vet all clients and operate only in approved jurisdictions.

Risk Management Through Commonsense Measures

Ever since digital currency exchanges started offering leverage, margin and other 2.0 types of market services, there has been a vocal minority warning of events similar to what unfolded over the past few weeks. The bitcoin market experienced a mini-flash crash that saw exchanges offering margin begin forced unwinding of leveraged positions. Prices across these exchanges plummeted nearly 20% over a very short period of time with cascading effects across the broader exchange space.

Given that bitcoin is traded globally non-stop across exchanges with different rules and liquidity options, the rudimentary function of a sound spot market has been lost. In the interest of risk management and security, itBit does not currently offer leverage or margin. Our clients appreciate this aspect of our exchange as there is no fear of cascading overnight pricing caused by unexpected margin calls that would directly affect their positions. Further, itBit operates a closed liquidity pool — meaning we do not route orders to or from other exchanges, marketplaces or vendors because of the current lack of oversight and varying compliance levels across the industry.

Where itBit Stands

At itBit, our mission is to maintain our liquidity pool in a way similar to other credible traditional financial institutions by implementing the disciplined regulatory, compliance and risk management principles outlined above. There is currently a significant amount of weight on the exchange ecosystem. Currently, risk has been centralized on one or two exchanges as smaller exchanges look to build volume by white-labeling larger exchanges’ order books. Our clients look to us to provide a stable source of price discovery which we work hard to maintain.

Originally published at

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