Crypto Might Have an Insider Trading Problem

Public data suggests that several anonymous cryptocurrency investors have benefited from internal knowledge of when tokens would be listed on stock exchanges.

For six days last August, a cryptocurrency portfolio amassed a $ 360,000 stake in Gnosis coins, a symbol linked to an effort to build blockchain-based prediction markets. On the seventh day, Binance, the world’s largest cryptocurrency exchange by volume, said in a blog post that it would list Gnosis, allowing it to be traded among its users.

Token lists add liquidity and a seal of legitimacy to the token, and often provide a boost to the bargaining price of a token. The price of Gnosis has risen sharply, from about $ 300 to $ 410 in one hour. The value of Gnosis traded that day has more than seven times its seven-day average.

Four minutes after Binance’s announcement, the portfolio began selling its stake, settling it in just over four hours for just over $ 500,000, earning a profit of about $ 140,000 and a return of about 40%. according to an analysis by Argus Inc. ., a company that provides companies with software to manage employee trade. The same portfolio showed similar patterns of buying tokens before their lists and selling quickly afterwards with at least three other tokens.

The cryptographic ecosystem is increasingly facing the headaches that the world of traditional finance has addressed decades ago. The collapse of a stablecoin call from its fixing of the dollar earlier this month stemmed from the cryptocurrency version of a banking career. As cryptocurrency exchanges prevent market-sensitive information from leaking it has also become a growing concern. The focus comes when regulators raise questions about market equity for retail users, many of whom have only recorded significant losses due to sharp declines in cryptocurrency assets.

The portfolio that Gnosis bought was among the 46 that Argus found to have bought a combined value of $ 17.3 million in tokens that appeared shortly after on Coinbase.,


Binance and FTX. Portfolio owners cannot be determined through the public blockchain.

The profits from the sale of tokens visible in the blockchain amounted to more than $ 1.7 million. However, the real benefits of trading are likely to be significantly higher, as several parts of the bets have been transferred from wallets to stock exchanges instead of being traded directly for stable currencies or other currencies, Argus said.

Argus focused only on portfolios that showed repeated patterns of buying tokens before the listing announcement and selling shortly after. The analysis marked business activity from February 2021 to April this year. The data was reviewed by The Wall Street Journal.

Coinbase, Binance and FTX said they had compliance policies that prohibited employees from trading in inside information. The latter two said they reviewed the analysis and determined that the business activity of the Argus report did not violate its policies. Binance’s spokesman also said none of the wallet’s addresses were linked to his employees.

Coinbase said it is conducting similar analyzes as part of its attempts to ensure justice. Coinbase executives have published a series of blogs dealing with the topic of front running.

“There is always the possibility that someone inside Coinbase may, deliberately or unintentionally, leak information to outsiders involved in illegal activities,” Coinbase chief executive Brian Armstrong wrote last month. The exchange, he said, investigates employees who appear to be linked to the front and dismisses them if they are found to have helped in such trades.

Paul Grewal, Coinbase’s chief legal officer, followed up with a blog post on Thursday. The company saw leaked listings information before the ads through merchants who detected digital evidence of exchanges testing a token before a public announcement, he said. Coinbase has taken steps to mitigate this, in addition to its efforts to prevent insider trading from employees, he said.

Portfolios like these have sparked a debate in the crypto community about whether targeted buying of specific tokens before listings in exchanges points to inside information. Cryptographic markets are largely unregulated. In recent years, regulators have looked more closely at market equity for individual investors. The largest bitcoin cryptocurrency fell 24% in May, causing huge losses for individual investors across the market.

Insider dealing laws prohibit investors from trading stocks or commodities with non-public material information, such as knowledge of a future listing or merger offer.

Some lawyers say existing criminal statutes and other regulations could be used to prosecute those who trade cryptocurrencies with private information. But others in the cryptocurrency industry say the lack of specific precedents for insider trading has created uncertainty about whether and how regulators might try to address it in the future.

Argus CEO Owen Rapaport said internal cryptography compliance policies could be undermined by a lack of clear regulatory guidelines, the libertarian ethos of many space workers, and a lack of institutionalized rules against insider trading in cryptography. compared to those of traditional finance.

“Companies have real challenges in making sure that the code of ethics against insider trading, which almost every business has, is actually followed rather than being a piece of inert paper,” Rapaport said.

Gary Gensler, chairman of the Securities and Exchange Commission, said Monday that he saw similarities between the influx of individual investors into the crypto markets and the 1920s stock boom that foreshadowed the Great Depression, which led to the creation of the SEC and its mandate. to protect investors. “The retail audience went deep into the markets in the 1920s and we saw how it came out,” Gensler said. “Don’t let anyone say, ‘Well, we don’t need to protect ourselves from fraud and manipulation.’

Exchange spokespersons said they have policies in place to ensure that their employees cannot exchange confidential information.

A Binance spokeswoman said employees have a 90-day withholding on any investment they make and that company leaders are mandated to report quarterly on any business activity.

“There is a long-standing process, including internal systems, that follows our security team to investigate and hold accountable those involved in this type of behavior, with its immediate termination having minimal impact,” he said.

FTX CEO Sam Bankman-Fried said in an email that the company explicitly prohibits employees from trading or sharing information related to upcoming token lists and has an established policy to prevent it. Bankman-Fried said the prominent negotiation in Argus’ analysis did not result in any substantial breach of company policy.

Write to Ben Foldy at and Caitlin Ostroff at

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