The problem of insider trading in crypto
On June 1, the former OpensEa market manager Nathaniel Chestein on charges of NFT and money laundering was arrested in the United States. According to the prosecutor’s office, Chestain used the confidential Opensea information for personal benefit. This is the first time that insider trading in the crypto led to real arrest. Another high -profile example of this kind of fraud happened on April 12, when a certain trader bought little -known altcoins worth $ 400,000 Digital Currency , and the next day a few minutes before the announcement of their listing on Coinbase sold purchased assets for $ 572,000. The crypto community believes that this is another example of insider trade – the use of non -public or confidential information to gain the advantage in the trade of cryptoactives. In this article we will tell you what insider trading is in crypto.
What is insider trade
Insiders and insider trade are the terms that came to the cryptomor from the stock market.
Insiders are people or companies with non -public information about securities or their issuers, that is, those who know more about the state of affairs are more than simple investors.
Insider information is non -public data that give an advantage in transactions or can be used to manipulate assets price. That is, the insider knows about the issuer issuing something that helps him more profitable to sell or buy this asset.
At the same time, analytical forecasts, expert opinions, public news about the project are not insider data. If the information is publicly available, it is not insider. For this reason, you should not look for non -public data in various “insider” channels, chats and forums. The main goal of most of their authors is to sell “exclusive access to the closed chat” to gullible users ”. In fact, the chances that real insiders will post the worthwhile information into open access are close to zero.
Insider trade – the use of insider information in market transactions. For example, information about the upcoming partnership or listing found, exploited or leading against the project of the authorities, can largely affect the price of the asset.
In the stock market, insiders may have holders of a large stock package, top managers, members of the board of directors, auditors, management companies, brokers and other professional market participants. Under securities legislation, insiders are obliged to report to the exchange regulator about transactions with the papers of their company. Moreover, in some cases, for example, before publishing reports, they do not have the right to trade them on the exchange.
What is the danger of insider trade
Insider trade negatively affects any market, because:
- Allows unscrupulous players to manipulate the market;
- Gives the insider a chance to earn a profit, but can lead to large losses of other traders;
- Spoils the reputation of companies whose employees came across insider trade;
- Reduces confidence in the market and creates unequal conditions for trade – it is unfair if one user has more data than others. In the future, this may affect the growth rate of the entire sector;
- Gives regulators more reasons to tighten control over the market.
For these reasons, insider trade in the stock market is a criminal criminal that is punishable by large fines or even imprisonment. Although in Russia there were no such precedents yet, the United States is monitoring this type of fraud strictly.
As for the cryptorrhnik, here insider trade is so far adjusted very poorly.
In the United States, cryptorrhnines are regulated by the securities and exchanges (SECs) commission and commercial futures trading commission (CFTC). It is they who should hold employees and issuers of crypto projects caught on manipulations. But in practice this has not yet happened. The accusations of Nathaniel Chastain, whom we talked about at the beginning of the article and will tell in more detail below, were presented by the Ministry of Justice. In the stock market, litigation of possible insider trade can go on for years. Crypto is still adjusted much less strictly, many users here retain anonymity.
Examples of insider trade
We will analyze several large and widely known cases of insider trade.
Insider trade conducted by regulator employees. Sometimes non -public information is used for trading not only crypto -plots, but also those who should look after them.
At the beginning of 2018, the South Korean financial supervision service (FSS) reported the investigation of cases of insider trading digital assets among employees of the department. The head of the FSS then admitted that before announcing the strengthening of control over national crypto floods, officials of the department hastily got rid of their cryptocurrencies. But then the law of the country did not prohibit civil servants to trade digital assets – and no one was held accountable.
Insiders in Skysoin. In 2018, Cryptiantia Jared Dunn published an audio recording on Twitter, where the head of the Skysoin project Brandon Sint talks about the manipulation of the price of the project coin (including the use of pamp-i-Damp-schemes) and cases of insider trading, conducted by several employees and administration of the project. Their actions allegedly contributed to a sharp take -off of the price of the Sky coin – from $ 9 to $ 38. The incident did not receive further development.
Investigation of insider trade in Binance. In September 2021, the SEC began an investigation of possible insider trade and market manipulation on the largest crypto -story from the world. CFTC is also probably involved in the investigation. The exchange said that it adheres to the policy of total rejection of insider trade – the security service is monitoring its execution, “which holds those who participated in this” (sounds as recognition that this happens). So far, nothing is known about the results of the research of departments.
It is difficult to reliably say how widely insider trade is widespread in crypto. She, no doubt, is, and the examples above clearly show how profitable it can be. But it is difficult to track such cases, and to prove the fact of insider trade is even more difficult.
Unfortunately, the crypto community cannot directly deal with this problem – you have to rely only on the conscientiousness of developers and crypto floods. The good news is that the market is developing – and there are fewer opportunities for insider manipulations.
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