- Analyst Martyparty says over 250 CEXs and 100+ off-chain platforms are unregulated for asset rehypothecation.
- Lack of transparency could be contributing to long-term price suppression and market distortion.
- The analyst suggests these centralized entities undermine the core principles of decentralization.
There is a growing concern about centralized platforms possibly distorting crypto market prices. These concerns center around rehypothecation, a practice that remains largely unregulated. Without oversight, derivative crypto assets may outnumber the real ones, creating risks for retail traders and long-term investors.
Centralized Platforms Under Scrutiny
Concerns about crypto price suppression have resurfaced following a post on X by crypto analyst Martyparty. He claimed that centralized exchanges (CEXs), Layer 2 (L2) sequencers, and permissioned bridges contribute to market manipulation.
The core issue lies in their use of customer-deposited assets for, essentially reusing the same assets to back multiple obligations or synthetic tokens.
Related: South Korea to Investigate AVAIL Altcoin Over Price Manipulation Concerns
According to Martyparty, the crypto ecosystem includes around 250 centralized exchanges, 20 L2 sequencing platforms, and 80 centralized crypto bridges. These platforms exist outside Layer 1 blockchains, where native consensus and transparency mechanisms are absent.
Despite their scale and influence, none of these platforms is subject to specific regulation restricting or auditing rehypothecation practices. Most are only partially regulated for anti-money laundering (AML) or know-your-customer (KYC) compliance, and only to meet fiat on-ramp requirements.
Rehypothecation and Price Manipulation
In traditional finance, rehypothecation is closely watched and often limited. In crypto, however, the lack of oversight creates opportunities for centralized platforms to mint synthetic or derivative versions of tokens without sufficient Layer 1 reserves.
This effectively increases the circulating supply of crypto assets, diluting the real scarcity that often underpins their market value. The analyst argues this could artificially suppress prices, especially when leveraged positions are forcibly liquidated during market downturns.
“These off-chain platforms are not crypto,” Martyparty wrote. “They are the root of suppression and manipulation used to accumulate real Layer 1 assets and liquidate leverage traders.”
The analyst suggests these centralized entities undermine the core principles of decentralization and trustless verification. Unlike decentralized exchanges or native Layer 1 protocols, off-chain platforms operate in opaque environments where users cannot verify asset backing or collateral levels.
Growing Concerns of Crypto Price Manipulation
Meanwhile, this issue of price manipulation is not an isolated case. In January, Wall Street faced allegations of manipulating Bitcoin prices to buy in cheaper.
In a YouTube video, Aaron Arnold of Altcoin Daily suggested that major institutions, including BlackRock, may be coordinating efforts to suppress Bitcoin’s value through strategic market moves and media narratives.
Related: Wall Street’s Bitcoin Price Manipulation Claims: What You Need to Know
He pointed to the $330 million in outflows from BlackRock’s Bitcoin ETF as a possible part of this strategy. Arnold also referenced Jim Cramer’s recent bearish comments on Bitcoin, noting Cramer’s past admissions of market influence to suggest these remarks could be deliberate attempts to sway investor sentiment.
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