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A recent study from the University of Technology Sydney points to data that insider trading is evident in up to 25% of cryptocurrency listings.
Drafted in early August, the paper shows significant price run-ups ahead of official exchange listing announcements, in the same way that prosecuted cases of insider stock markets have operated.
In the paper, the researchers evaluated 146 token listing announcements on leading cryptocurrency exchange Coinbase between September 25, 2018, and May 1, 2022. Following that, the researchers looked at the price changes of the sampled cryptocurrencies. The examination was on the price on different exchanges 12 days (300 hours) before Coinbase listing announcements and 4 days (100 hours) after the announcement.
Insider trading in cryptocurrency
The idea behind the study was to find whether insider trading was occurring. If that was the case, tokens that were already tradable on decentralized exchanges (DEXs) prior to the listing would have more significant returns than tokens that weren’t listed on DEXs. According to the researcher’s findings, 10% to 25% of the tokens studied showed statistically significant levels of irregular returns. The research also showed the price patterns on DEXs just before Coinbase listings looked the same as the run-ups seen in stock insider trading. To add to the evidence, it was also found that following Coinbase listing, a small subset of wallet addresses on the specific DEXs appeared to accumulate tokens and then quickly sold their coins.
According to the paper:
“This paper provides further empirical evidence of insider trading in cryptocurrency markets, including identifying cases that are not in the SEC prosecution and estimating the prevalence and profits of insiders. 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.”
What is insider trading?
Insider trading, previously, has not been well documented or regulated in cryptocurrency. Given the anonymity and decentralized space, it is difficult to watch accounts and patterns related to insider trading.
The act of insider trading happens when market players transact using confidential information from within a company and is unknown to the wider public. In most regions, insider trading is prohibited and punishable, but up until recently, only offences involving traditional financial markets had been brought to justice.