- Nearly 25% of Coinbase listings over the last four years were plagued with insider trading, according to a new report.
- Three Australian researchers found evidence of systematic insider trading in the crypto market.
- Coinbase’s tokenized stock COIN yielded 6% losses overnight.
Australian researchers have gathered evidence of systematic insider trading on Coinbase. Ahead of nearly 25% of new listings in the last four years, insiders have capitalized on non-public information of tokens set to be listed on Coinbase.
Evidence of insider trading in 25% of new Coinbase listings emerges
Three Australian researchers have found evidence of systematic insider trading on Coinbase. Insider trading is the trading of a cryptocurrency by individuals with access to confidential or material nonpublic information. In the case of Coinbase insider trading, individuals with knowledge of which cryptocurrencies would be listed next purchased these assets and dumped them on retail once the token was listed on the platform.
In the last few years, the Coinbase effect has emerged as a popular narrative. The Coinbase effect is the spike in a token’s price when the market learns that the token is getting listed on the exchange platform through a public announcement. If individuals have access to the list of tokens getting listed ahead of the public announcement, there is enough time to scoop up the cryptocurrency at a relatively low price and benefit from the gains of the “Coinbase Effect” and the exchange listing.
Ester Félez-Viñas, Luke Johnson and Tālis J. Putniņš are three Australian researchers who identified that individuals with access to insider information from Coinbase were involved in significant price run-ups before official listing announcements. This makes Coinbase’s insider trading case similar to prosecuted cases of insider trading in stock markets.
The team of Australian researchers leveraged blockchain data and identified the specific transactions and wallets of individuals who engaged in trades consistently before the announcements. This ruled out alternative explanations. Researchers have estimated that insider trading occurs in nearly 10-25% of crypto listings as a lower bound. Insiders have yielded as much as $1.5 million in profits from these trades.
The individuals involved in insider trading, identified through the new research report, are yet to be prosecuted.
Australian Researchers’ published paper on SSRN
Why is insider trading a menace for retail traders?
Insider trading is unfair and discourages ordinary people from participating in markets. Since individuals with access to material non-public information pump the token ahead of its listing, retail participants do not benefit from the token’s listing on the exchange platform. Instead, most retail participants lose capital in the aftermath of insider trading. What’s more, crypto insider trading is illegal, just as it is in mainstream securities markets.
Retail traders can benefit by identifying the triggers of a profit zone for a cryptocurrency or asset. Analysts at FXStreet reveal triggers of a profit zone and more information on profitable trading in the video below:
COIN bleeds on FTX exchange
Coinbase’s tokenized stock COIN on FTX exchange plummeted in response to the latest research. COIN yielded nearly 6% losses overnight, the token declined 8% over the past week. Coinbase’s publicly-traded stock COIN also nosedived as the academic study by the Australian researchers was published by SSRN. The paper is available for download on the website, and a widening legal problem spells trouble for COIN and its tokenized stock.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.