Coinbase, one of the world’s largest cryptocurrency trading platforms, surprised their users as they introduced Bitcoin Cash to their offerings on Tuesday. As a result, the price of the forked version of Bitcoin skyrocketed, increasing $5,400 in just 3 minutes. GDAX, Coinbase’s online exchange, even showed quotes as high as $9,500, which is more than triple the price tag of Bitcoin Cash on other exchanges. Four minutes after the trade begun, the SF based company was forced to halt the trading of the currency.
GDAX also suspended the trading of the coin due to what they described as “significant volatility.”
According to the Wall Street Journal:
‘After Coinbase announced the halt, a company spokesperson said unfilled orders would be removed and no new orders would be accepted. GDAX said all of its Bitcoin Cash markets would remain offline until noon Wednesday, Eastern Time. GDAX later said it paused trading because of significant volatility “to ensure a fair and orderly market.”’
Allegations of Insider Trading
The absurd increase in the price of Bitcoin Cash and the abrupt trading halt raised suspicions of front-running – the act of buying huge amounts of a certain stock on advance information provided by their brokers and investment analysts. In this case, Coinbase employees and affiliates were the ones under scrutiny.
Brian Hoffman, chief executive at Open Bazaar, an online retail site that uses bitcoin, wrote on Twitter:
Insider trading of crypto is so obvious. BCH skyrockets…hours later @coinbase rolls it out
— Brian “the influencer” Hoffman (@brianchoffman) December 20, 2017
Whalepool, a daytrader community focused on Bitcoin and other cryptocurrencies, also expressed similar sentiments on Twitter:
Very strange accumulation and pump on Bcash in the hours leading up to the @Coinbase BCH add. If I didn't know better, I'd think that was potential insider trading activity. @GDAX 'ed? #bitcoin #bcash #bch pic.twitter.com/leX8ro0MFf
— Whalepool (@whalepool) December 20, 2017
Hours after halting the Bitcoin Cash trade, Coinbase clarified the situation on its official Twitter account:
Coinbase maintains a strict trading policy and internal guidelines for employees. Coinbase employees have been prohibited from trading in Bitcoin Cash for several weeks.
— Coinbase (@coinbase) December 20, 2017
As a response to this fiasco, CEO Brian Armstrong released a post on Medium, expressing his intention to launch an insider trading probe:
“I take the confidentiality of material non-public information very seriously as CEO. Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”
However, because of the possibility to hide transactions by using multiple accounts, this investigation might prove to be difficult. Even if the accusation of insider trading turns out to be true at Coinbase, users can only express their outrage in vain unless some form of regulation is implemented for the market.