Prices of Bitcoin – the most valuable cryptocurrency tradable via Bitcoin Trading Software and Ethereum are touching the skies, and the crypto market saw a massive increase in the number of crypto better trading decisions. Even some of the stock market traders also shifted their investments to cryptocurrencies to make a profit. Along with this migration, some of the trading strategies also moved to the crypto world.
One of those tactics is known as Insider Trading. The first-ever case of Insider Trading came to the surface by an executive of the OpenSea, and the Department of Justice accused him of making profits from confidential information. At the same time, the Security and Exchange Commission has developed a probe to tackle Insider Information in the crypto world.
What Is Insider Trading?
Insider is illicit trading in which a person makes a profit by buying or selling using confidential information. For instance, you are an employee of a particular organization, and the firm is planning a giant merger or is about to announce unsatisfactory annual results. If you are using this confidential information to earn profit by trading, it would be Insider Trading, and you are under prosecution for it.
In the case of stock, there are specific rules, regulations, and techniques to prevent Insider Trading. It applies to the firms that are registered with the Securities and Exchange Commission as they have the mechanisms to avoid it. Companies can hire compliance officers, establish training programs, and announce blackout periods to limit buying & selling around significant events. Still, it is unstoppable.
What Is Front-Running?
When a trader gets the benefit of confidential information about a future transaction that will result in price fluctuations of a coin, it is called front-running. Hence, crypto traders trade these coins based on inside information, assuming that; it will affect the price. As that information is advanced and non-public, traders use it as a competitive advantage over other traders and the entire market. That is why one can consider front-running as a type of Insider Trading or Market Manipulation.
In What Ways Does It Affect Crypto?
In the ecosystem of cryptocurrencies, there are only a few digital currencies that have well-established mechanisms and procedures. Most of the cryptocurrencies do not belong to any of the classes and are not suitable for investment as they need to follow the rules of the Securities and Exchange Commission. But it can be said that the rules of Insider Trading are not limited to only assets registered with the SEC. And there is no defense of ignorance of the law.
Two months back, the Department of Justice revealed that it is going to charge an employee of OpenSea. The employee was given the responsibility to decide which of the Non-Fungible-Tokens would be featured on the homepage of the network; he secretly purchased some of those NFTs in advance. He sold them after the prices increased and earned a profit. OpenSea is known as one of the biggest Non-Fungible-Token marketplaces in the globe.
Another aspect that is under hot debate is that people often buy cryptocurrencies slightly before their registration on popular crypto exchanges. As the prices rise after fresh listing announcements, it can be a way to create a rapid amount for people who already know. According to Fox News, the SEC wrote multiple exchanges to seek further information. If the officials can prove that the exchange users are buying & selling based on private information, we can see more digital assets under the charges of Insider Trading.
How Is Insider Trading Hurting Crypto Investors?
The Securities and Exchange Commission strictly falls in the case of Insider Trading of stock for a reason; it makes the game field uneven and endangers ordinary investors. Insider Trading eliminates the trust and confidence in the crypto and Non-Fungible-Token market. It indicates that when you purchase crypto or an NFT, you may not be convinced that someone who has excessive unfair information has already pushed the price. Crypto exchanges have confirmed that they have launched mechanisms to prevent exchange employees and traders from earning profits through secret information, but it is ambiguous how hard they are or how severe the problem is. The challenge is that crypto regulation is minimal, so crypto investors depend on individual organizations to organize themselves.