Coinbase Has Serious Insider Trading Problem Study Claims – Decrypt

Coinbase Has Serious Insider Trading Problem, Study Claims – Decrypt

Three financial researchers from the University of Technology in Sydney, Australia, claim that insider trading is “systemic” in the cryptocurrency industry, estimating that such activity has taken place in up to 25% of Coinbase listings over the past four years.

In a non-peer-reviewed article titled “Insider Trading in Cryptocurrency Markets,” Professor Ester Felez Vinas, Professor Talis Putnins, and graduate student Luke Johnson estimate that 10-25% of cryptocurrency listings on the San Francisco are insider-based Exchange between September 2018 and May 2022. Researchers claim this resulted in at least $1.5 million in ill-gotten gains. “Our findings identify cases that remain to be prosecuted,” they wrote.

They go on to argue that the growing perception of insider trading in crypto could deter conscious potential investors and “hinder the adoption of cryptographically secured ways of representing securities and other financial instruments” — a perception broadly supported by their findings.

In terms of methodology, the researchers examined 146 Coinbase listings and tracked their prices for 300 to 100 hours before each new listing went live on the exchange to look for abnormal trading patterns of these assets on decentralized exchanges (DEXs) that don’t require identity verification .

“Upon visual inspection, we find that prior to the listing announcement, there is an apparent ramp-up pattern beginning at -250 hours,” the researchers note.

“The ramp-up continues until the listing announcement, where we see a price jump as new information comes out and traders react to the news. The pattern of increases we observed is consistent with increases in prosecuted insider trading cases in the stock markets,” they wrote.

But opponents could argue that the paper paints with a broad brush, applying insights at Coinbase to the entire crypto industry as a whole.

A source familiar with trading practices on crypto exchanges told Decrypt that the study “draws hasty conclusions” without providing clear evidence that insider trading took place or identifying specific wallet addresses that allegedly traded tokens – Listings advanced.

A Coinbase representative emailed Decrypt that it “takes allegations of front-running incredibly seriously.”

“We are working hard to ensure all market participants have access to the same information. As part of this effort, we take steps to minimize the possibility of technical signals during asset testing and integration steps. We have zero tolerance for illegal behavior and will monitor and investigate if necessary,” the Coinbase spokesperson said.

This isn’t the first time Coinbase listings have faced insider trading allegations. The U.S. Department of Justice recently indicted former Coinbase product manager Ishan Wahi for crimes related to alleged insider trading while at the company. Authorities claim that Wahi shared the Coinbase asset listing announcements in advance with two others in a scheme that earned them over $1.1 million in profit.

Regarding Wahi’s allegations, Coinbase said in a blog post that it has “zero tolerance for this type of misconduct and will not hesitate to take action against any employee if we find any misconduct.”

More insider trading allegations have recently come to light across the crypto industry. Nathaniel Chastain, OpenSea’s former head of product, has also been accused of insider trading after allegedly maintaining leading NFT lists. OpenSea CEO Devin Finzer called the allegations “misrepresentation” in September last year and said the term “insider trading” didn’t apply to what transpired.

But the Justice Department seems to disagree. In June, it charged Chastain with wire fraud and money laundering related to alleged insider trading. Chastain had advance knowledge of which NFT collections would appear on OpenSea’s home page and allegedly pre-purchased assets from those collections for personal financial gain.

August was already a big month for regulatory moves in crypto. US lawmakers last week cracked down on controversial crypto-mixing service Tornado Cash, which is now illegal to use in the US

And as researchers and lawmakers continue to scrutinize the crypto industry, it’s possible this move is just the beginning.

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