Coinbase/Bitcoin Cash Insider Trading Probe: No Action to Be Taken

Coinbase, the operator of the USA’s biggest cryptocurrency exchange, has completed its internal investigation of insider trading allegations and concluded that it no action is necessary.

There was no public statement – Fortune asked Coinbase for an update, and was told that the investigation, which involved two “well-known national law firms”, was finished last week. An anonymous source with knowledge of the matter told the media outlet that Coinbase staff were informed of the outcome at a meeting.

Time to buy the dip?

“We can report that the voluntary, independent internal investigation has come to a close, and we have determined to take no disciplinary action,” said a Coinbase spokesperson.

$1,800 to $9,000

The trouble began when Coinbase added Bitcoin Cash to its exchange (then called GDAX, now Coinbase Pro) in December 2017.

Bitcoin Cash is a cryptocurrency created from a fork of the original Bitcoin. It currently has a market capitalisation of $14.5 billion, according to coinmarketcap.com. Its acceptance onto the Coinbase exchange made it suddenly available to millions more people.

The price of Bitcoin Cash jumped dramatically as a result of this news, which was expected. What was not expected was the discrepancy in price of Bitcoin Cash on GDAX and its price on other cryptocurrency exchanges.

To explain: one BCH coin had cost around $1,800 before the announcement, and around $3,500 afterwards. On GDAX, however, the price spiked to around $9,000. Some accused the exchange of insider trading – that is, employees of Coinbase that knew of the move beforehand used this knowledge to profit.

A non-crime?

Bitcoin Cash creator Roger Ver described this as a “non-crime“, and indeed no laws were in place at that time prohibiting insider trading by employees of cryptocurrency companies. However, such behaviour at a company in any other industry would land the perpetrator a significant stay in prison.

As a result of the strange market behaviour, GDAX suspended trading BCH trading and CEO Brian Armstrong published a strong message: “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.”

Bitcoin Cash trading resumed the following day after the price calmed down.

Ongoing lawsuit

A class-action lawsuit was filed against Coinbase in March 2018 by Jeffery Berk, a customer. Berk claimed that Coinbase employees flooded the exchange with orders as soon as the announcement was made, which they were able to do because they knew about it beforehand.

People who did not have the privilege of working at Coinbase were thus at a disadvantage – the suit claims that the behaviour cost the public $5 million. The case is still in the procedural stages, according to Fortune.