Insider trading still plagues crypto

Insider trading, a practice inherited from traditional finance, is no stranger to the crypto world. Several times pointed out in its very young history, it appears at regular intervals according to a careful observation of the data from the blockchain. The zero tolerance in this area advocated by cryptocurrency exchanges is being undermined by the latest revelations from the Wall Street Journal.

Insider trading is still running in crypto

According to an article in the Financial Journal citing data from the analysis company Argus, anonymous investors would have greatly benefited from inside information about the future listing of tokens on the Binance, Coinbase and FTX exchanges. A blessing, of course, because we know ita crypto listed on a leading stock exchange sees its price explode in the first few days.

Argus in particular identified 46 digital wallets that acquired Gnosis (GNO) tokens for a total of $ 17.3 million in August 2021. Immediately after listing on major trading platforms, they sold them at a profit more than that.

Profits from transactions with visible tokens in the blockchain amounted to more than $ 1.7 million. But their actual income is likely to be much greater. Some of the assets have been transferred from wallets to exchanges and not exchanged directly for stack coins.

Argus on Twitter

that timing of the transaction leaves little doubt about the reality of insider trading. In fact, based on an example of a specific case discovered on Binance, the data reveals that a wallet accumulated Gnosis (GNO) tokens for $ 360,000 the six days prior to the platform census. Four minutes after Binance was listed, the wallet began selling and liquidating everything within 24 hours. Result: $ 500,000, $ 140,000 profit. A nice jackpot for a seemingly usual portfolio of that fact.

This criminal practice, which is detrimental to individual investors, is therefore returning to the surface despite the claims of the main stock exchange platforms, which claim to be combating this harmful phenomenon..

The defense of trading platforms

The stock exchanges involved in this analysis vehemently denied that their employees could be the cause of these fraudulent maneuvers. Their respective compliance policies allegedly prohibit employees from trading crypto based on internal information.

FTX CEO Sam Bankman-Fried said via email that the company explicitly prohibits employees from trading or sharing information related to upcoming token listings. He also argued that the trades highlighted in Argus’ analysis were not the result of a material breach of company policy. Binance also supported this view.

We have a zero tolerance policy and adhere to the highest standards. 3 investigators have reviewed the wallets, no one can connect with Binance employees.

Changpeng Zhao, CEO of Binance, at Twitter

However, the platform’s virtuous policy, CZ admits, may have weaknesses.

… We do not even try to let the project teams know when [les cryptos] will be listed. But sometimes it can not be completely avoided when we need technical support for wallet integration etc.

Changpeng Zhao, CEO of Binance, at Twitter

The transparency of blockchain, an asset to be exploited

As for Coinbase, in the hot seat since influencer Cobie discovered in April an address that had invested “hundreds of thousands of dollars” in tokens 24 hours before their integration on the platform, he also defended his policy in this area, while acknowledging error in the system.

Before we insert an asset, we need to test it in a way that appears on the blockchain. These signals are not obvious, but are nevertheless available to everyone and are detected, if anyone is really looking for them, by examining the available data.

Coinbase Blog from May 19th

But the Coinbase CFO article rightly insists blockchain transparency.

It is important to understand that tracking and disrupting malicious actors using crypto is much more effective than using traditional fiat currencies. That does not mean it is easy. But we have an advantage because cryptocurrencies are recorded on a permanent, public blockchain, which gives our investigative team – as well as the public and law enforcement – insight into the details of various transactions.

Coinbase Blog from May 19th

Nevertheless, the problem is far from solved.

Regulators seize the issue

For Argus CEO Owen Rapaport, internal crypto-compliance policies can be undermined by the lack of clear regulatory guidelines and the libertarian ethics of many working in space. He also notes the lack of institutionalized standards against insider trading in crypto compared to those in traditional finance. A more dubious argument so far the news of classical finance often reminds us of the tenacious existence of this kind of practice.

Either way, the regulators that are already on the grill will definitely go up. The Wall Street Journal very conveniently reports on the recent intervention of the head of the US Securities and Exchange Commission.

Gary Gensler said Monday that he saw similarities between the influx of individual investors into cryptocurrencies and the stock market boom of the 1920s, which predicted the Great Depression and led to the creation of the SEC and its mandate to protect investors.

The retail audience had penetrated deep into the markets in the 1920s, and we have seen how that happened. Do not let anyone say, “Well, we do not need to protect ourselves from fraud and tampering! This is where you lose faith in the markets.

Insider trading, again pointed out in the ecosystem, is a gift from God to its defense of the consumer, which is at the heart of its policies. Above all, nothing is more unpleasant than observing the peculiarities of the old world in a universe that supposedly wants to wipe the board clean. Society is not naive, its lookout points remain on the lookout. But for beginners, it’s a different story. It is imperative to combat this scourge to make the crypto ecosystem fairer.

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