Cryptocurrency markets are struggling with insider trading – Axios
Cryptocurrency
The nascent cryptocurrency industry is making progress with traditional investors, but there are still major concerns about insider trading and other unethical behavior.
Why is it important: Unlike traditional investment markets, which are overseen by multiple governments, agencies, companies and funds that deal with digital tokens are largely left to self-regulate. This could leave unjustly disadvantaged retail investors without the same levels of information and remain an obstacle to making institutional investors feel comfortable with crypto-assets
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Go deeper 523 words [19659006] For digital token exchanges such as Coinbase and Robinhood, extra knowledge about individual tokens can have an out-of-scale effect on trading.
Flashback: For example, Bitcoin Cash's last fall in Coinbase has been borrowed.
Bitcoin Cash was created as a Bitcoin clone, which meant that anyone who owned the cryptocurrency would automatically be entitled to the same number of Bitcoin Cash tokens.
Coinbase eventually announced that it would launch Bitcoin Cash support a few months later to allow its customers to access their tokens through the company's digital portfolios.
But a few hours before the listing was announced publicly, there was a peak in the price of Bitcoin Cash, suggesting that someone with knowledge of the plans could leak or act on it.
Coinbase engaged two external law firms to investigate the matter and recently declared to Fortuna that he found no wrongdoing. However, a lawsuit against Coinbase is still ongoing.
How they are handling this: For the most part, cryptocurrency exchanges borrow from the rules that follow more traditional exchanges and that are often implemented by regulators like FINRA.
Many have developed their own policies that stipulate that employees can not share relevant non-public information with anyone outside the company, or the business tokens that their employer is going to list, with strict rules on trading.
Coinbase last month published a list of five tokens that could add in the future, which may have helped contain potential losses while investigating each token. And, on Tuesday, he announced the hiring of his first chief compliance officer.
Hedge fund managers who exchange digital tokens have also raised suspicions and concerns about potentially unethical behavior.
As a close-knit industry, it is not uncommon for fund managers to be friends or in other relationships with people developing token projects, providing them with unchecked access to information or the ability to "pump and download" a new token.
Some fund managers recommend individual token projects, giving them undoubtedly special access to information.
"Those concerns are real … so many people in this group have capital with other people," Ari Nazir, managing partner of Crypto-Hedge Fund Neural Capital, tells Axios about industry relations.
Nazir adds that he created ethical rules for himself and his colleagues, even if there is no such requirement for obtaining his broker's license. For example, he asks entrepreneurs not to tell him certain information such as plans to be listed in a particular exchange. His team also documents all investment decisions and only negotiates specific parameters to ensure that nothing is done due to information obtained improperly.
Another question that emerges is the role of venture capital funds that buy tokens: a much more liquid position than the initial share capital they usually hold for years. Messari co-founder Ryan Selkis recently suggested that VCs, which often publicly praise their investments, should disclose their symbolic sales to make sure they are not throwing tokens on retail investors.
Conclusion: " The government has a system to protect retail investors and at the same time control fund managers, and the crypto industry can definitely learn from this," says Nazir.
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