WSJ: Insider trading is rife in cryptocurrency

According to the Wall Street Journal, an analysis by Argus, a firm that helps companies manage employee trades, shows that some cryptocurrency investors benefited from insider information about when exchanges would list tokens.

The report, based on available public data, shows several wallets showing a pattern of buying tokens a few days before listing and selling them immediately after listing.

This practice appears to be common across most major exchanges, including Binance, Coinbase , and FTX. A token listed on a major exchange is often a temporary catalyst for its price.

According to blockchain data, one wallet accumulated $360,000 worth of Gnosis coins over a six-day period in August. Binance announced that it would be listing Gnosis on the seventh day, causing the price to rise to more than seven times its average price over the past seven days.

The wallet went on sale 4 minutes after Binance announced the listing and liquidated all assets within 24 hours. They made $500,000 from the sale, pocketing a profit of about $140,000. Analysis shows that this is not the first time the wallet has done the same.

Argus found that 46 wallets bought $17.3 million worth of cryptocurrencies before listing on the three major exchanges. However, the identity of the owner remains unknown.

While the visible profit from the token sale was over $1.7 million, the actual profit could have been higher. As the company reported, many wallets moved some of their holdings to exchanges rather than selling them directly.

The analysis focuses on the period from February 2021 to April 2022. It only considered wallets that exhibited a pattern of buying tokens prior to listing.

This analysis brings the topic of insider trading in cryptocurrencies back into the limelight. Regulators and observers have been talking about how the practice disadvantages retail investors. But so far, not enough action has been taken.

Binance and FTX release statement

However, the exchanges listed in the analysis denied this claim. They said their compliance policies prohibit employees from trading on privileged information.

A spokesperson for Binance reportedly said: “Our security team has a long-standing process, including internal systems, to investigate and hold those who engage in this type of behavior accountable, and immediate termination is the minimum response.”

This sentiment was also reiterated by FTX CEO Sam Bankman-Fried, who revealed that his company explicitly prohibits its employees from trading tokens that will be listed.

Meanwhile, Binance CEO Changpeng Zhao (CZ) also reiterated this on Twitter, saying that the company has a “zero tolerance policy where (we) hold ourselves to the highest standards.”

Note: The original text comes from beincrypto