The crackdown on cryptocurrencies is a good thing, say traders

Key Points
  • Some crypto traders say regulating cryptocurrency could help clean up the market for digital coins, preventing future manipulation.
  • "When [regulators] come out with regulation, it's going to open the floodgates for new money to come into crypto," says crypto trader Ran Neu-Ner.

Regulating cryptocurrencies is a good thing and it might even help advance the digital currency market, crypto trader Ran Neu-Ner told CNBC on Thursday.

"When [regulators] come out with regulation, it's going to open the floodgates for new money to come into crypto," the host of CNBC Africa's "Crypto Trader" said on "Fast Money."

While Neu-Ner said there will be crackdowns during this process, he encourages it.

"I hope that they can catch the people [conducting fraudulent activities], because we have to weed out the bad actors," said Neu-Ner, who is the founder of OnChain Capital and an early investor in bitcoin.

"If we have bad actors, it's going to create a lack of trust in this asset class," he said. "If we want to make this a real asset class, with real people, then let's weed out the bad actors. But the first step is, let's legislate first; let's regulate first. So we know what the playing field looks like."

The Department of Justice this week launched an investigation into whether traders have been manipulating the prices of bitcoin and other cryptocurrencies — part of increased regulatory scrutiny in the sector.

Earlier this month, the Securities and Exchange Commission launched, a phony website designed to teach investors what fraudulent initial coin offerings might look like. The North American Securities Administrators Association's "Operation Crypto-Sweep," a look into 70 possible crypto schemes, also began in May.

Brian Kelly, founder and CEO of digital investment firm BKCM, told CNBC on "Power Lunch" on Thursday that the DOJ's probe is not necessarily a bad thing.

"They'll be able to clean [cryptocurrency exchanges] up a little bit," said Kelly.

Neu-Ner said that with a smaller market size and fewer people in an unregulated and often misunderstood industry, it was easier to take advantage of what was unknown.

Now though, he said, regulations are a good thing, as manipulation would be harder with "eyes everywhere."

"Everyone is worried about who's watching," he said.

Kelly agreed, pointing out that clear regulatory guidelines and a manipulation-free market were some of the SEC's guidelines for a physically backed exchange-traded fund.

"This is one more step toward the maturation of this process," Kelly said.

Neu-Ner has previously warned investors and regulators alike about the need to establish regulations on ICOs. Without them, he said, the U.S. could risk "falling behind" other countries in terms of innovation and hosting companies that use blockchain technology.