330
views

What is Insider Trading? Why Should Crypto Networks Discourage it?

When it comes to cryptocurrencies, insider trading does not go without mention. The subject has been a hot topic in the crypto space to the extent of media outlets. Popular cryptocurrency exchanges such as Coinbase have faced lawsuits due to allegations of insider trading.

Over the years, the government has not set measures against organizations that take part. But, the CFTC’s current enforcement practices encompass cryptocurrencies. The regulation will be the same as that applied to securities by the SEC. This article will look into what insider trading entails. It will also look into why crypto networks should discourage it.

What is Insider Trading?

There is no specific definition of insider trading; however, there are three ways to be found liable for the activity in the United States. The first is a classic material, where one knows non-public information about a particular company. It would work if you were an insider and trading that information.

The second is tipper liability. When someone has confidential information about a company, they tip a person likely to trade the lead. The third is tippee liability. It entails exchanging information on a tip from someone who keeps non-public information about a company.

Although, trading on material, non-public information is not a violation of United States securities laws per se. One might overhear strangers talking about such information, and does not prevent one from lawfully trading a company’s security.

Why Crypto Networks Should Discourage Insider Trading

In crypto markets, participation in insider trading can allow you to gain numerous advantages in the market. Here is why crypto networks should discourage insider trading:

Unfair Markets

When it comes to insider trading, few people receive the information as it is non-public. This factor undermines confidence in the crypto market, discouraging retail investors from the rigged markets.

The insiders with confidential information about the market will have the upper hand. They can avoid losses and gain from market shifts, eliminating investors’ inherent risk in the crypto market. The cryptocurrency market is still young and requires trust from investors as it goes mainstream.

If there are doubts, the public will give up on crypto. And, both companies and the broad network will have difficulty raising funds. Eventually, there might be few outsiders hence insider trading could eliminate itself.

Full Value Loss

Insider trading prevents genuine investors from getting the total value of their investment. For instance, if the confidential information spreads before insider trading occurs, the crypto market integrates information, benefiting everyone.

For example, a crypto-related company could have a new launch, but the information was not public the following week. An investor could use insider information to their benefit, purchasing the cryptocurrency before the information release.

After the announcement, the prices will rally hence allowing them to make a considerable profit by selling. When compared to an investor who had no prior information, they would not gain as much.

Insider Trading is Illegal

Insider trading was made illegal through court interpretations with other laws such as the Securities Exchange Act of 1934. It is only legal if the developers in charge of the company disclose their activities to the SEC. The Securities and Exchange Commission then releases the information to the public.

Insider trading did not apply to Congress members for several years, profiting lawmakers from the 2008 financial crisis. The public raised concerns about the issue, and hence, government officials added it to the law in 2012.

Transparency Alteration

Most crypto companies pride themselves on their transparency such that investors have access to all information similarly. Also, their transactions happen openly, with all the information public.

It will not sit well with investors that some of them are receiving information that they are profiting from, even though they have equal rights to the data. Hence, this goes against the transparency feature promised for all users.

However, insider trading does not have any adverse effects on markets, given that a lot of transactions take place daily in crypto markets.

Information Theft

Exploiting non-public information to benefit in crypto markets is technically theft of the information. The company with bridged data has a stronger claim to be a fraud victim, as it’s their information stolen and used for personal gain. The charge might hold for those who disclosed the information. However, it is difficult to see how the company is a victim of fraud when its shareholders take part in the trading.

What Rules Apply in Crypto Trading?

What should the regular crypto trader be aware of to stay on top of the rules? To begin, even if you are not in the US and are trading cryptos outside of the US, the SEC or CFTC may still pursue you if they believe you are utilizing insider knowledge to sell digital assets in the US market. There have been numerous cases where the SEC has sued individuals living in other countries for insider trading in securities traded in the United States.

Despite these few seeming black-and-white circumstances, insider trading law exists in the shades of gray. When regulators believe a collection of events may indicate insider trading, they are frequently eager to initiate an expensive and intrusive inquiry; even transactions conducted in good faith may be subject to regulatory examination. The application of ever-changing norms to ambiguous factual events creates traps for the unwary.

Conclusion

Insider trading law is highly complex, adding to the complication of crypto trading products, with most untested and unresolved. However, insider trading enforcement in bitcoin product marketplaces is on the way.

Traders, mainly insiders, should be cautious and seek advice, despite the costs attached to good legal counsel. However, failing to seek guidance before trade and defending a lawsuit from the SEC or CFTC can have far-reaching consequences.

Bitcoin live price
Btc
Bitcoin
$30.153
price
2.95272%
price change
BUY NOW

Meanwhile, crypto networks should discourage insider trading as it does more harm than good. Yet, it is worth noting that global participation is necessary to encourage mainstream crypto adoption.

Stay up to date with our latest articles

More posts

Binance CEO CZ Urges Users to Diversify their Investments 

Zhao Changpeng, founder and CEO of the global cryptocurrency exchange platform, Binance, recommends that individuals diversify their investments.  Although Zhao, also known as CZ, warned that he doesn’t necessarily follow his own advice as well. The CEO also assured that Binance users’ funds were "SAFU", as users dread another Terra repeat. "Investment Wise, I'm Not a Good Example" In a Reddit AMA – which means Ask Me Anything – the 44-year-old billionaire briefly discussed a myriad of topics in response…

Cyprus Government Prepares Crypto and Digital Assets Bill

The Government of Cyprus has laid down its own digital assets laws to administer cryptocurrency transactions. It is very likely Cyprus could adopt the new bill before the EU reaches a consensus regarding its own regulatory structure. Kyriacos Kokkinos, an official of the Cyprus government, shared this information in a fintech meeting at Larnaca. Government Supports Crypto Usage Also a member of the European Union, Cyprus has a reputable position in the consortium when it comes to innovation. Just last…

Crypto Now a Popular Investment Option for European Families

More than 50% of European families have some investment in digital currency.   The average European family sees crypto as a viable investment and savings option. This was discovered in several recent surveys conducted over different demographic areas. Despite the volatility of the crypto space, as recent events highlight, it has seen a continuous rise in new investors. More people are committing to crypto investments and many of them are taking steps to buy into the growing market.  The flurry…

New MicroStrategy CFO Remains Committed to Bitcoin HODL Plan

MicroStrategy still doesn’t plan to sell its Bitcoin, according to the company’s new Chief Financial Officer Andrew Kang. The recent bear market, which has brought Bitcoin’s value below the company’s average purchase price, hasn’t shaken the organization’s faith. “At this time, we do not have any intention to sell,” said the CFO, after joining the company on May 9th hailing from GreenSky. “There are no scenarios that I’m aware [in which] we would sell.” Shareholders also remain confident and reportedly…

CFTC Chief Backs Regulatory Incentives to Make Bitcoin Proof of Stake

Rostin Behnam – chairman of the Commodities and Futures Trading Commission – is displeased with Bitcoin’s current levels of energy consumption. He believes regulators should establish incentives to push the network towards a proof of stake (POS) consensus model. Not Worth the Energy, says Benham Speaking at POLITICO’s Sustainability Summit, Benham claimed that Bitcoin’s energy consumption doesn’t match its economic output. “That may rebalance over time, but right now it’s clearly skewed,” he said. Most of Bitcoin’s energy consumption is…

Terra Collapse Causes G7 to Hasten Crypto-Centric Regulations

Earlier this week, ministers from the world's top economies, the G7, called for greater speed as financial watchdogs introduce comprehensive crypto regulation. This comes shortly after Terra's demise saw several crypto users suffer considerable losses in the space of a week. G7 Contacts FSB to Hurry Things Up The stablecoin failed to maintain its dollar peg and crashed as low as $0.07, with sister token LUNA not far behind. This created a ripple effect as general market anxiety destabilized even…

Andreessen Horowitz Unveils 2022 State of Crypto Report

The Silicon Valley venture capital firm Andreessen Horowitz (a16z) released a report on Tuesday covering the current state of crypto adoption. It highlights Ethereum as the leading blockchain network for developer support but contains very little mention of Bitcoin’s growth. The Potential of Web 3 The VC firm broke boiled down its report into five key takeaways about the current state of crypto. It began by suggesting that the industry is in the middle of its fourth ‘price innovation’ cycle.…

BinaryX Unveils CyberArena: A New Play-To-Earn (P2E) Experience

BinaryX developed and released CyberArena, a free-to-play, play-to-earn strategic card game. Gamers may compete to earn rewards while enjoying and experiencing a no-cost game in a new decentralized environment. The team has recently shared an AMA recap on its Medium page. The session gave the public the chance to learn more about CyberArena and the team’s plans. Getting to Know CyberArena CyberArena is a key addition to the BinaryX ecosystem. Being a free-to-play game with substantial prizes, it is a…

FBI Warns US Businesses Against Inadvertently Hiring North Korean Hackers

The US Federal Bureau of Investigation (FBI) has cautioned businesses against accidentally hiring IT employees from North Korea. In an advisory note, the state and treasury departments and the FBI warned that North Korean hackers are posing as freelancers. In doing so, they take advantage of remote work opportunities to earn money for Pyongyang. According to the FBI, the country’s hackers have been using this approach to evade US and UN sanctions. Reportedly, North Korea has used the funds from…

Terraform Labs’ Legal Team Steps Down Following LUNA Crisis

The legal department of Terraform Labs is in shambles following the resignation of key team members. While there are no clear reasons yet behind the slew of resignations, this hasn’t stopped speculations that Terra’s lawyers might have ditched the struggling ship because of financial constraints. Legal Team Abandons Ship According to a spokesperson affiliated with the developers, three attorneys have now left Terra's holding firm. This unfolds about one week after the catastrophic collapse of Terra's stablecoin, UST, and its…