Sydney Uni Finds Insider Trading Occurs in 10-25% of Crypto Listings

A group of Australian researchers at the University of Technology in Sydney have released a report claiming that between 10 and 25 percent of Coinbase listings since 2018 involve insider trading.

‘Systemic’ Insider Trading

The report alleges that insider trading is “systemic” in the crypto sector, suggesting that up to 25 percent of Coinbase listings in the past four years have involved insider trading, to a lesser or greater extent.

Professor Ester Felez Vinas, Professor Talis Putnins, and PhD candidate Luke Johnson analysed crypto listings between September 2018 and May 2022, and claim that this resulted in some US$1.5 million in profits. Perhaps more telling is the fact that identified cases have yet to be prosecuted.

As a result, the researchers argue that due to the growing perception of insider trading, it may have the result of scaring away potential investors and “impede adoption of cryptographically secured ways of representing securities and other financial instruments”.

In reaching their findings, the team examined 146 Coinbase listings and tracked their prices 300 to 100 hours before each new listing went live on the exchange to look for abnormal trading patterns of said assets on KYC-free decentralised exchanges.

From visual inspection, we note that there is an evident run-up pattern prior to the listing announcement starting at -250 hours.

Report findings

The report adds that “the run-up continues until the listing announcement event, where we see a jump in price because of new information entering the market and traders reacting to the news”. It concludes by saying that the “run-up pattern we observe is consistent with the run-ups in prosecuted cases of insider trading in stock markets”.

Irresistible Temptations

The report comes as little surprise as evidence mounts that insider trading is increasingly becoming a feature within crypto exchanges, particularly those that are less selective with their listings.

We saw it last year in the NFT space, as one senior executive at OpenSea was found to be front-running listings, and more recently a Coinbase employee was charged for doing the same.

Whether in traditional or crypto markets, human nature remains the same. When people have access to asymmetrical information capable of yielding profits, the temptation to take advantage is often too great to resist.