Australian Researchers Claim Insider Trading At Coinbase

Crypto Exchange Coinbase recently reported a $1 Billion Loss in Q2. Coinbase’s revenue tanked more than 64% during quarter-two year-over-year amidst the crypto market collapse. The retail transactions revenue also dropped by 66%, to now stand at $616.2 million.

The hurdles for Coinbase just don’t seem to end. 

Now, three researchers from Sydney Australia: Ester Félez-Viñas, Luke Johnson, and Tālis J. Putniņš, have claimed that Insider trading occurs in 10-25% of cryptocurrency listings in their research paper called “Insider trading in cryptocurrency markets.” Their research paper has used the Cryptocurrency exchange Coinbase for the case study.

Insider Trading Spikes In The Crypto Sector

Insider Trading in the Crypto sector has been often overlooked until recently due to minimal regulation. 

However, in July, an ex-employee of Coinbase was investigated by the U.S. Department of Justice (DOJ). The Coinbase employee, along with his brother and friend, was charged with wire fraud and insider trading.

The research paper by these scholars from the University of Technology Sydney makes use of blockchain data to identify perpetrators of insider trading, who are yet to be summoned. They analyzed all of Coinbase’s listing announcements and processes from September 2018 until May 2022 using an internet archive site.

As a general observation, the researchers noted that insider trading is more prevalent in crypto compared to stock markets. The profits from such illegal activity are estimated to be around 1003 ETH ($1.5 million) at all times. Such numbers are achieved by selling tokens instantly after the listing announcement.

The paper says, “Our analysis shows significant price run-ups before official listing announcements, similar to prosecuted cases of insider trading in stock markets. These findings point to cryptocurrency markets being susceptible to the same forms of misconduct that regulators have for a long time grappled with in traditional financial markets.”

The paper published by the researchers mentions, “Leveraging blockchain data, we identify the specific transactions and wallets (individuals) that consistently trade before announcements, ruling out alternative explanations. We estimate that insider trading occurs in 10-25% of cryptocurrency listings and as a lower bound, insiders earned $1.5 million in trading profits. Our findings identify cases that are yet to be prosecuted.”

Coinbase In Distress 

Coinbase had lost a lot in the second quarter, as apparent in the Q2 results which displayed a loss of more than $1 billion. The ongoing struggles were visible to the entire world as the California-based company shockingly laid off 1,100 of its staff recently. 

As per reports, Coinbase fell from $462 billion in 2021 to just $217 billion. In Q2, Coinbase’s loss per share stood at $4.95 instead of the expected $2.65. The exchange company also missed its revenue estimates with Q2 revenue standing at $808.3 million, which was much lower than the $832.2 million expected.

Coinbase’s net loss also spread to $1.1 billion compared to the $1.59 billion in revenue during the same quarter a year ago. By the end of the June quarter, Coinbase’s crypto assets stood at $428 million, which was 50% down from $1 billion in assets during the end of the March quarter.

The company wrote in a letter to its shareholders, “Q2 was a test of durability for crypto companies and a complex quarter overall. Dramatic market movements shifted user behavior and trading volume, which impacted transaction revenue, but also highlighted the strength of our risk management program.”