New study points to instances of alleged insider trading at Coinbase

By I-HODL | A Crypto Journey | 18 Aug 2022

My friends, if you've been trading in crypto for some time, you'd have heard of the Coinbase Effect.

As crypto legend would have it, the Coinbase Effect means that any project identified for listing by the trading platform, Coinbase Global, would instantly spike upon identification, so that traders who get in early- like just before or maybe seconds after a public listing- could make a cool profit. So let's unpack that a bit, shall we?

According to a September 2021 article by BSC News, "Prices see an average rise of 91% within the first five days of listing. The mainstream recognition of Coinbase is enough to boost a token and its trading volume massively." In fact, the article further notes that SHIB's listing last year resulted in an  approximate 1000% spike.  And, quoting an earlier Messari report, it also pointed out that Coinbase's post-listing price response trumped other exchanges such as Binance, FTX, OKEx, Kraken and Gemini, though of course, to be clear, as Newton put it, what goes up must come down, and so, the spike in price is usually short-lived, just for about a day or two, before crashing again. So the idea for some time has been to get in, make a bag, get out, right?

Well, all good things come to an end and it seems like the Coinbase Effect has been cooling a bit since courting controversy earlier this year, following the listing of 50 relatively unpopular tokens on its blogs in April, though they had a relatively low market cap of below $1 billion and low liquidity. The move led to an uproar on Twitter as users noticed that shortly before the announcement was made public, large sums of money were invested in some of the tokens which, of course, soared in value after the announcement. 


And then in July of this year, just about a month ago, authorities, alleging that a former Coinbase Product Manager- Ishan Wahi, his brother, Nikhil Wahi, and friend, Sameer Ramani- planned to use Coinbase information about which assets were scheduled to be listed on the exchange, charged the trio. The charges were wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets.

According to the allegations, Ishan misappropriated Coinbase confidential information, tipping off his brother or friend ahead of public listings, thus enabling the men to acquire at least 25 different crypto assets on at least 14 different occasions before Coinbase's announcements during the period June 2021 and April 2022. This saw them generate at least $1.5 million in ill-gotten gains.

Now, there's a new Coinbase study suggesting that insider trading at the exchange was probably far more widespread than has been reported, with alleged instances of questionable trading going as far back as 2018.  The August 8th study, Insider Trading in Cryptocurrency Markets, was conducted by academics Ester Félez-Viñas, Luke Johnson and Tālis J. Putniņš, all of the University of Technology Sydney. It claims to provide empirical evidence of insider trading in cryptocurrency markets, including cases that have not been prosecuted by the SEC.

"Using hand collected data on cryptocurrency listing announcements from September 2018 until May 2022, we find abnormal return run-ups prior to the official exchange listing announcements similar to prosecuted cases of insider trading in stock markets."

The team also used blockchain data to track individual (wallets) that "systematically trade ahead of listing announcements and find consistent and systematic trading that rules out other explanations for return run-ups", thus estimating that insider trading occurs ahead of 10-25% of cryptocurrency listings.

Referring specifically to a set of four connected wallets, the team noted a conscientious move to "trade soon-to-be-listed coins prior to the official listing announcements in a consistent and systematic manner", oftentimes using decentralized exchanges without KYC checks to acquire tokens during the 300 hours before Coinbase's public announcement, and earning an estimated profit of 1003 ETH ($1.5 million) by selling the tokens soon after
the listing announcement. These estimated profits correlate, it appears, with the charges laid against the former Coinbase employee and his alleged associates.

Now friends, I read the study and was somewhat underwhelmed. On reading it, I felt like if you'd heard the news of the Coinbase insider trading arrest last month, well, there isn't any earth shattering revelations here other than the suggestion that maybe insider trading at Coinbase went way further back than the 2021-2022 timeline identified in the US authorities' case, or the suggestion that insider trading occurred ahead of 10-25% of cryptocurrency listings. That's my takeaway after reading the study. Probably I scanned, missed something, and would need to return to read in detail. 

Mind you, I'm not nonchalant about the news, don't get me wrong. I mean, I don't think anyone could be nonchalant about it when you're entering a market to trade and invest in good faith and where there's the chance that the very gate keepers are untrustworthy. This is not any indication of me shrugging at wrongdoing. Not at all. It's just I was expecting something more in-depth.

With the title suggesting insider trading in cryptocurrency markets as a whole, I guess I was looking for information beyond Coinbase that maybe also looked into trading patterns at other centralized exchanges. Take for example, a Bloomberg article on the study noted that, "Some less formal studies in the past have also observed the same pattern at other major platforms such as Binance."

Maybe I'm desensitized,  my friends, so tell me, were you surprised by this news? Outraged? I'd love to hear your take on this. 

CAD$30,000 net buy limit imposed on Canadian Crypto-Traders

In other news though, crypto traders and investors in Canada are reportedly criticizing a move mandated by the Ontario Securities Commission to limit annual cryptocurrency purchases. This mandate, purportedly to protect crypto investors, has resulted in Canadian exchanges imposing a net buy limit of CAD$30,000 on all cryptocurrencies except Bitcoin, Ethereum, Litecoin and Bitcoin Cash, with exceptions made for residents of the British Columbia, Alberta, Manitoba, and Quebec provinces.

Now what do you think of that? I mean, on the one hand, you could simply buy one of the four unrestricted cryptocurrencies and then swap them out on a decentralized exchange, right? And then the crypto of your choice to your private wallet. But the extra step is extra hassle and extra cost, and who knows if there wouldn't be another attempt to plug that hole as well, right?


Anyways, friends, that's it for me today. I'm off again, but please let me know your thoughts about this news, and until we meet again, be safe. We'll chat soon.

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