Investors who are incensed at the allegation that Coinbase employees engaged in insider trading before the exchange added support for bitcoin cash should probably reconsider their decision to invest in cryptocurrency, according to a prominent venture capital firm executive.
As CCN.com reported, Coinbase made the surprise announcement on Tuesday that it had added full support for bitcoin cash, enabling customers to not only claim their airdropped BCH that had been locked up since the August fork but also buy and sell BCH on both Coinbase and GDAX.
The bitcoin cash price rose in advance of the announcement, leading many people to accuse Coinbase employees of engaging in insider trading by buying bitcoin cash, correctly assuming that the price would explode once the news became public.
While there’s currently no hard evidence to back up this claim, Coinbase CEO Brian Armstrong penned a blog post promising to launch a full investigation into the matter and terminate any employee who traded bitcoin cash in violation of company policies — on any exchange — in the weeks leading up to the announcement.
However, despite Coinbase’s best efforts, there will likely be no way to prove definitively that no one privy to the announcement traded on the news, whether directly or through a family member or associate.
Commenting on the allegations, cryptocurrency investment professional Ari Paul wrote on Twitter that insider trading is “impossible to prevent” and that the best companies can do is to explicitly prohibit employees from trading particular coins in advance of major announcements, as Coinbase did.
“It’s literally impossible to prevent,” said Paul, the chief investment officer at cryptocurrency venture capital firm BlockTower Capital. “A team has to integrate a new coin on to the platform. There’s no way to keep a secret that requires a team’s involvement. And there’s no way to prevent those who know the secret from secretly buying cryptocurrency.”
Paul, who previously worked as a portfolio manager for the University of Chicago’s $8 billion endowment, said that insider trading laws are “quite subtle” and often do not apply to commodities or currencies.
“Insider trading laws mostly apply to equities, not commodities or currencies. Same thing happens (and is often legal) in traditional FX and commodity markets,” he wrote, adding that investors who want the assurance of a fair market should reconsider their decision to participate in the “trustless” cryptocurrency markets.
“Is it “unfair”? Of course. If you want fair, cryptocurrency isn’t for you. Stick with assets that are based on trusting the regulatory and legal infrastructure. Cryptocurrency is “trustless” which also means that it’s mostly uncontrollable,” he concluded.
Write to Josiah Wilmoth at josiah.wilmoth(at)CCN.com.
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