Crypto Corner: Insider Trading Is Real

Have recent studies unearthed bad behavior in the crypto space? Yeah… it’s looking that way. Apparently, according to studies, there’s an insider trading problem in crypto, and it’s systemic. It seems that, as the crypto space has grown up, it has grown on and around a foundation of insider trading. Not only that, but the first case involving a criminal investigation is playing out right now, and we can expect to hear more about this as the space gets a closer inspection from agencies tasked with consumer protections.

So how does insider trading present itself in the crypto market? Well… it looks like traders buying coins prior to exchange listings using private information to give themselves the leg up. Insiders use insider knowledge of coin listings prior to official announcements and listings. Luckily, blockchains afford investigators a goldmine of data that traditional finance simply doesn’t: transparency. This on-chain data allows authorities to gather and analyze information in unique ways due to the capabilities of the technology.


So… who’s involved in the first ever crypto insider trading charges? Crypto exchange titan Coinbase. I’m sure it’s an honor they’re not too thrilled to carry the mantle on… but that’s what comes with being first, you often take the bumps on the head that those who follow learn from (or fail to learn from). Let’s dig into the details, find out what happened, and find out what we can expect to see in the space from these types of crackdowns in the future.

Here’s the abridged version… a guy who worked at Coinbase was supposedly giving his brother and one of his buddies information about coins prior to listings. So, it would go something like this: Coinbase employee knows coin A will list next week, calls brother and friend to tell them, brother and friend buy coin cheap, listing happens, coin price skyrockets, guy who works at Coinbase, his brother, and said friend then sell for a profit. Pretty sweet deal, if we do say so… if you enjoy being in boat load of legal trouble, that is.

Oversimplifications aside, the official charges for Ishan Wahi (Coinbase employee), Nikhil Wahi (brother), and Sameer Ramani (friend) are wire fraud conspiracy and wire fraud in connection with a scheme to commit insider trading in cryptocurrency assets. Attorneys on the case so far have a clear message: “… fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street…”

All told, authorities found that the three were responsible for illegal trades in at least 25 different crypto assets and that they were able to realize ill-gotten gains to the tune of $1.5 million. That’s not chump change, that’s a lot of money… and, since Coinbase is one of the largest and well-known cryptocurrency exchanges in the world, the fact that this was able to go that far is troubling. We hope this action encourages more crackdowns in the future.

The way that it’s supposed to work, and the way Coinbase was assuring people it was working, is that, when a coin was set to list on the exchange, this sensitive information was kept strictly confidential and employees were prohibited from sharing that information with others, including by providing a “tip” to any person who might trade based on that information. Apparently, Ishan was privy to this information as a member of a very private messaging channel reserved for a small number of Coinbase employees.

More Will Follow

What’s astounding to us is this… if this is a small, exclusive group, did this person not think that, eventually, someone would notice a pattern and begin to suspect insider trading? With that small of a pool of possible suspects, Ishan almost made himself a sitting duck. Does that demonstrate a blaring comfort with the behavior in the space, or is it one lone person brimming with hubris and unable to deny temptation? That’s the question.

Maybe some of that behavior is hubris and an understanding that, at least as it stands, the eye is turned to poor behavior, including insider trading. So, it could be normalized…. while this is the first case involving insider trading in the crypto market specifically, it’s not the very first in the space at all. Just recently, the DOJ brought insider-trading charges against an employee of Opensea, a marketplace for non-fungible tokens (NFTs).

As the crypto space continues to grow and gain mass adoption, it’s to be expected that some will try to get away with misbehavior. But just like the crypto space is growing, so too are the eyes scrutinizing behavior in the space. Far from taking this as a bad sign, we see it as a sign that the space is finally getting the attention and real oversight that it sorely needs. Come back next week, we’ll keep bringing you the latest from this space. See you then!