cryptocurrency, bitcoin, ethereum, crypto
“Oh Good, Public Scrutiny”: Why Coinbase’s Insider Trading Fiasco Matters For Different Reasons Than You Think
GDAX and Coinbase recently added Bitcoin Cash to their rosters. In the wake of this addition, some signs suggest insiders at Coinbase may have engaged in insider trading shortly beforehand.
Following the addition, Coinbase tweeted this:
Coinbase CEO Brian Armstrong also released a statement explaining the potential trading and outlining Coinbase’s insider trading policies.
Coinbase specifically prohibits employees and contractors from trading on material non-public information, and from communicating that information to outsiders. Specific to BCash, all employees and contractors were “prohibited from trading Bitcoin Cash and from disclosing our launch plans over a month ago.”
Armstrong also stated he “will not hesitate to terminate” an employee “immediately” if there is evidence the employee violated this policy.
Insider Trading Policies
Many financial institutions are required to have policies and procedures in place to prevent insider trading. And many institutions that aren’t required to have such policies and procedures still voluntarily adopt them as a CYA.
These policies and procedures serve to make employees aware of insider trading laws, put employees on notice of the what's acceptable, and protect innocent companies from devious employees.
As an example, some institutions implement “black out windows.” This refers to time periods during which employees may not trade a particular security. This is what Coinbase’s Armstrong referred to: a blacklisting of any employee trading Bitcoin Cash in the month prior to its addition to the platform.
Insider trading laws apply to securities.
For example, Rule 10b-5 prohibits fraud “in connection with the purchase or sale of any security.”
But the SEC has said whether a cryptocurrency is a case-by-case determination.
Categorically, cryptocurrency is not a security.
But, categorically, cryptocurrency is not not a security.
What’s An Exchange To Do?
Exchanges could take the easy route and ignore insider trading laws.
Or they could do the respectable thing and implement insider trading policies even when insider trading laws have not definitively been applied to them.
This is a strong signal that crypto institutions are serious about growing a legitimate industry that protects everyday investors.
That’s not to say cryptocurrency categorically is or isn’t a security. This just means that crypto institutions like Coinbase value protecting investors with the same safeguards that apply to securities.
Gives them significant credibility, no?
See Also: AML & KYC Laws
Many exchanges are also abiding by Anti-Money Laundering (AML) and Know Your Customer (KYC) laws, too. These laws are aimed at reducing money laundering, terrorism financing, and general fraud.
You’ve likely experienced these laws already. Think about when you signed up for a crypto exchange and they asked for a scan or picture of a government-backed ID.
Again, we see the theme: cryptocurrency institutions are already complying with financial laws.
Pundits often express concern that regulation could kill crypto. [links] But many players in the cryptoscape are already complying with regulations before they even have to.