The world of cryptocurrency frequently resembles the conventional financial sector. For instance, when Bitcoin Cash (BCH) was made available for trading on Coinbase, a significant international exchange, suspicions started to circulate concerning potential insider trading. If you are interested in Bitcoin trading, check here.
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The Proclamation from Coinbase
However, Coinbase CEO Brian Armstrong announced a significant move today. The business plans to investigate the unexpected price spikes seen in BCH on various exchanges right before the historic announcement that it would be included in the list of tradable cryptocurrencies. Although the company lacks conclusive evidence of wrongdoing, Armstrong used the blog post to explain their internal business policies, confidentiality procedures, and potential consequences stemming from the ongoing investigation.
The CEO and co-founder stressed that Coinbase has had a trading policy in place for a long time. This policy categorically prohibits employees and contractors from trading based on “material non-public information,” even when a new asset is about to be integrated into a platform. He added that this policy prohibits disclosing such private information to third parties, including friends and relatives, and goes beyond trade prohibitions. Another crucial point was emphasized by Armstrong: before the announcement, trading Bitcoin Cash and disclosing launch plans were categorically prohibited for every single Coinbase employee and contractor.
GDAX, Bitcoin Cash and Coinbase
In 2011, Armstrong and Fred Ehrsam created Coinbase, a San Francisco-based company. It has quickly gained notoriety as the leading American trading platform for Bitcoin. After completing the prestigious Y Combinator program, the company raised a record $225 million in funding through a Series D round in August 2017. This helped to boost its post-money valuation to an astounding $1.6 billion. Together, GDAX and Coinbase serve shrewd investors while Coinbase serves regular consumers.
On August 1, 2017, a big split between Bitcoin and Bitcoin Cash occurred. The block size limit was increased throughout this metamorphosis from one megabyte to an impressive eight megabytes in response to the resource issues the original cryptocurrency had. Although most exchanges refer to BCH by its ticker symbol, it is occasionally written as BCC. However, the less well-known BitConnect Coin also uses this similar acronym. Despite having a market size of over $56 billion, it is undervalued compared to Bitcoin, which is estimated to be over $300 billion. Nevertheless, from the beginning of November, the price of BCH has shown a consistent upward trend.
In response to accusations of wrongdoing, Coinbase temporarily stopped BCH trading. As a result of the statement, Bitcoin Cash reached a record-high price of over $3,600 and even reached $8,000 on GDAX. Markets were shut down and trading was suspended until liquidity could be established. There were rumors that Coinbase affiliates or insiders took use of early access to the launch to increase the price of BCH by making purchases on other exchanges.
Exploring the Essence of Insider Trading
Insider trading is the practice of affecting stock prices using information that is not generally known. For instance, the introduction of Bitcoin Cash was only known to staff. Section 10(b) of the Securities Exchange Act, a US statute, forbids using internal information for one’s benefit and disclosing it to third parties, making both parties accountable for securities fraud.
The Outcomes of Regulation
Important questions still exist as the story continues. Regulators have different policies regarding cryptocurrencies, with the SEC classifying DAO tokens as securities and the CFTC classifying Bitcoin as a commodity. Commodity insider trading is complicated, yet unethical action could have negative effects. The US-regulated exchange Coinbase is required to abide by financial regulations. Despite the uncertainties, officials won’t put up with improper behavior, which might lead to harsh fines for offenders. The main concern is whether or not inquiries may reveal wrongdoing.
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