Lack of regulation is not the problem with crypto, in fact, exchanges are not following rules that are already in place, according to former Commodities and Futures Trading Commission Chair Timothy Massad.

Massad pointed to the Securities and Exchange Commission's existing rules to protect investors. However, several crypto exchanges aren't registered with the regulator and are claiming that crypto tokens aren't securities, though SEC chief Gary Gensler has said that they are.

"The real issue here is that the basic investor protection standards we have in the securities market and the derivatives market aren't being observed by these trading platforms. And by that, I mean the rules we've developed over decades to protect customer assets, to prevent a trading venue from operating a conflicting business and having conflicts of interest, rules to prohibit fraud and manipulation, the trading platforms aren't observing those," he said in an interview with CNBC on Thursday.

Many crypto exchanges said that cryptocurrencies are commodities, Massad said, which places them in a regulatory loophole.

The reluctance to follow rules for securities is a major risk for trading crypto, he added, urging regulators to enforce "common standards" for commodities and securities in the crypto space.

 "We have to have much tougher standards on protecting customer assets," Massad said. "We want those whether a token is a security or a commodity."