Insider trading is when someone makes a deal utilizing secret information to get an unfair advantage over other investors.
In recent years, the use of cryptocurrency has exploded, with many people investing in digital currencies such as Bitcoin and Ethereum. As with any rapidly developing financial market, there is the potential for illegal activities such as insider trading to take place. Insider trading involves individuals using confidential information to make trades that give them an unfair advantage over other investors. This type of activity is illegal in traditional financial markets, and regulators are now taking steps to crack down on insider trading in the cryptocurrency market.
Insider trading in the cryptocurrency market can take many forms. For example, individuals with access to confidential information may use this information to buy or sell cryptocurrency before the information becomes public. Alternatively, insiders may tip off their friends or family members about upcoming news or events that could affect the value of a particular cryptocurrency, allowing them to profit from the information.
One example of insider trading in the cryptocurrency market is the case of Coinbase employee, Rohan Jain. Jain allegedly used confidential information about Coinbase's upcoming support for Bitcoin Cash to purchase the cryptocurrency before the announcement was made public. Jain then sold the Bitcoin Cash after the price surged following the announcement. The Securities and Exchange Commission (SEC) brought a case against Jain, and he was ordered to pay a $300,000 fine and barred from trading securities for a period of six months.
The SEC is responsible for enforcing federal securities laws in the United States, and they have been actively investigating insider trading in the cryptocurrency market. In November 2018, the SEC settled charges against two individuals who were accused of insider trading in the cryptocurrency market. The individuals were alleged to have traded on confidential information about a company's planned initial coin offering (ICO), making profits of over $1.4 million. As part of the settlement, the individuals were required to pay fines and penalties totaling over $1.1 million.
Regulators around the world are also taking steps to crack down on insider trading in the cryptocurrency market. In Japan, the Financial Services Agency (FSA) has been working to tighten regulations around cryptocurrency exchanges, including rules related to insider trading. In December 2018, the FSA issued a warning to six cryptocurrency exchanges regarding their internal controls around insider trading. The FSA has also proposed new rules that would require cryptocurrency exchanges to report any suspicious trades or transactions that could be linked to insider trading.
The European Securities and Markets Authority (ESMA) has also highlighted the risks associated with insider trading in the cryptocurrency market. In a statement released in February 2018, the ESMA warned investors about the potential for insider trading in the cryptocurrency market, stating that "there is a risk that the price of cryptocurrencies could be manipulated by traders who have access to confidential information or who are able to influence the market in some other way."
In addition to regulatory action, cryptocurrency exchanges themselves are taking steps to prevent insider trading. Many exchanges have implemented strict rules around the trading of digital assets, including measures to detect and prevent insider trading. For example, some exchanges require employees to sign non-disclosure agreements and prohibit them from trading on the platform. Others use advanced analytics tools to monitor trading activity for suspicious patterns that could indicate insider trading.
Insider trading is a serious crime in traditional financial markets, and regulators and exchanges are now taking steps to prevent it from occurring in the cryptocurrency market. While the cryptocurrency market is still relatively new and unregulated, it is clear that insider trading will not be tolerated. As the market continues to evolve and mature, it is likely that additional measures will be put in place to prevent insider trading and other forms of illegal activity. In the meantime, investors should be aware of the risks associated with cryptocurrency investments and take steps to protect themselves from insider trading and other fraudulent activities.
Tim Moseley