The US allegation against a former Coinbase employee may not be the only example of insider trading on a cryptocurrency exchange, according to a new study. It appears that some traders have broken up 10 percent to 25 percent of Coinbase listings — or 15 to 37 percent of the tokens — since 2018, wrote three academics at the University of Technology Sydney. Federal prosecutors last month indicted a former Coinbase activist for profiting from at least 14 announcements, in a sign of growing regulatory enthusiasm in the asset class.
Coinbase did not respond to requests for comment.
Coinbase’s status as the largest publicly traded crypto exchange means that a listing can open up a token to many more buyers, fostering a sharp price bump that makes it profitable to buy before the listing is announced. it happens. Some less formal studies in the past have observed the same pattern on other major platforms such as Binance.
Researchers at UTS looked at how tokens available on decentralized exchanges would be added to the platform during the 300 hours prior to Coinbase’s announcement. This is based on a hypothesis that insider trading is more likely to occur in places like Uniswap, which usually do not require identity checks. Using statistical analysis, the authors estimated the number of instances where a price rally was potentially linked to an insider buying the token based on knowledge of an upcoming listing, rather than bullish speculation.
Coinbase traded on decentralized exchanges rose an average of 40 percent compared to market benchmarks during the 300 hours prior to Coinbase’s announcement. The study found that they increased by another 100 percent in the subsequent 2 hours. There was not much pattern for coins not on Uniswap. Putnik said the researchers — Ester Felez-Vinas, Luke Johnson and Tallis J. Putney chose the 300-hour window based on comments from insider trading on the blockchain.
While academics arrived at a 25 percent estimate from statistical analysis, the 10 percent lower limit comes from blockchain transactions found in four wallets. Johnson said he was probably linked to the three men charged by the US, but there was no way to be sure.
Between anonymity and a perceived lack of regulation, “this is an environment where you are likely to have financial crime and misconduct,” said Putnik, a finance professor at the university. “Here we have a unique data set – the blockchain – that we don’t have in the stock market that allows us to have more direct proofs.”
The accused former employee and his brother have pleaded not guilty, arguing that what they did was not insider trading as it did not involve securities or commodities. The former product manager’s lawyer also argued that the information is not confidential anyway.
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