Key Takeaways:
- A study claims insider trading has taken place on 10-25% of Coinbase listings between September 2018 and May 2022.
- Researchers state insiders earned $1.5 million in trading profits.
- Recently, an Ex-Coinbase manager was arrested on charges of insider trading.
Recently, insider trading cases in the crypto market are exposing vulnerabilities within the industry.
Last month Ex-Coinbase product manager was arrested on charges he shared confidential information with his brother and friend Sameer Ramani about forthcoming announcements of new digital assets that Coinbase would allow users to trade.
Earlier this month, the ex-employee and his brother pleaded not guilty to wire fraud charges in what is considered the first insider trading case involving cryptocurrency.
According to three finance researchers at the University of Technology in Sydney, insider trading has taken place on 10-25% of Coinbase listings between September 2018 and May 2022. They added that insider trading resulted in at least $1.5 million in ill-gotten trading profits for Coinbase
In the report titled “Insider Trading in Cryptocurrency Markets,” Professor Ester Felez Vinas, Professor Talis Putnins, and Ph.D. candidate Luke Johnson claim that insider trading is “systemic” in the cryptocurrency industry.
As part of the research, the academics examined 146 Coinbase listings and tracked the price movements of the tokens between 300 hours before Coinbase listing announcements up and 100 hours after the announcement. They further looked for abnormal trading patterns of tokens on decentralized exchanges.
“Hourly price and volume data are collected for all exchanges, both centralized and decentralized, that list the token 480 hours (20 days) prior to the Coinbase listing announcement. Centralized exchange data is sourced from CryptoCompare and decentralized exchange (DEX) data from The Graph.”, the report reads.
The researchers further claimed that they witnessed an evident run-up pattern prior to the listing announcement starting at -250 hours.
“The run-up continues until the listing announcement event, where we see a jump in price because of new information entering the market and traders reacting to the news”, the academics stated.
They wrote that the observed run-up pattern was consistent with the run-ups in prosecuted insider trading cases in stock markets.
Since insider trading cases are becoming a norm in Web3, the report’s findings have become much more concerning. Apart from Coinbase, the world’s largest NFT marketplace, OpenSea has also faced insider trading allegations.
In June, OpenSea’s former head of product Nathaniel Chastain was accused of using confidential information about what Non-Fungible Tokens/NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.
