This article idea has sat in the back of my mind for a while now but honestly, I did not feel like opening up that cans of worms. It's a topic that can be divisive and something that if not properly structured can be easily misconstrued. People are quick to dig in their heels and as a result, communities can fracture giving regulators additional ammo they need to push their regulations and oversite. Unlike other regulation battles where industries fight with regulators crypto has the advantage to get ahead of possible regulation since currently, it is lacking in general. To accomplish this though communities with differing opinions need to discuss and debate among themselves and reach a consensus and not bicker and fight leading to further fractures.
As much as it pains me to say recent studies and research have shown that crypto cannot always regulate itself. It is common for people to say that it can however some of the stuff that is going on or has gone on shows the current limits in the industry. Crypto has an insider trading problem that is bad enough that I think it would even make the stock market blush.
Up until this year, U.S. regulators stayed out of the listing run-ups that would occur but that has now changed. The first sign of this did not even come from Coinbase which has long been accused or assumed to suffer from the issue as it was an OpenSea employee who was charged with insider trading for using his knowledge about what would be featured on the home screen to buy them ahead of time and then sell them when they were featured and the price skyrocketed. Just last month we had the first Coinbase involved one with three individuals being charged. Like it was long thought one person who worked at Coinbase and found out about the upcoming listings told two people to buy the crypto and then they sold once the Coinbase bump occurred.
Further research recently released does nothing to help fix Coinbase's image though as a study has estimated that insider trading occurred on 10-25% of listing on the San Francisco exchange. The sample analyzed was 146 tokens with listing announcements between Sept. 25, 2018, and May 1, 2022, and when price movements were investigated on various exchanges, including DEX's, there was evidence of "run-ups" similar to seen in insider trading. While one could say if this happened a couple of times over the course of a few years it was a sheer chance but the number of tokens sampled impacts that view.
Even though this study was limited to Coinbase the same idea can be applied to all centralized exchanges. People who are privy to the information can easily exploit their knowledge and partner with someone to pull off this type of action. What I did not think of until I read the report though was how people were dragging DEXs (decentralized exchanges) into this by using them to acquire the given crypto. Knowing how regulators hate the fact DEXs exist and have shown great promise this isn't very good for them and they lack the traditional ability to defend themselves.
With such a large number of listing that could have been impacted by this type of nefarious behavior, something needs to be done. The actions taken by the crypto industry have sadly not been very successful in stopping this and with regular everyday people suffering from insider trading establishing basic guardrails will be vital to ensuring the growth and adoption of the technology. Just this week the employee from OpenSea who was charged with insider trading filed a motion to dismiss the insider trading charge because he said an NFT does not count. With people spending their hard-earned cash on NFTs to them it does matter and should apply.
Codifying NFTs, crypto, and other types of assets/goods in the industry into the existing laws helps ensure that people will not be able to get away with crimes that everyone can see they have committed due to the law being outdated. It should not be seen as a government overstep by doing this as it will essentially make sure that crypto is able to protect users even more so than it already can. Since so much is already on the blockchain it is my belief that we have more or less already given our basic information which would allow for lawbreakers to be able to be tracked and held accountable for their actions. Protecting people and working with regulators will allow the growth of the space to be supercharged as many worries that those who do not participate have will be addressed. It will also go a long way to satisfy regulators and take away a huge aspect that they like to leverage against the industry. Without worrying about them developers can really pour their efforts into different projects and ideas and not have to worry about getting in trouble later on with established rules.
Please know I am not a financial advisor and make sure you do your own research! If you enjoyed this article and would like to further support me below are a few referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
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