WSJ: Analysts Detect Signs of Insider Trading in Crypto Markets

A group of unknown investors earned substantial profits by using insider information about upcoming listings on cryptocurrency exchanges Binance, Coinbase and FTX. The The Wall Street Journal, citing data from Argus, reports.

Argus identified 46 digital wallets that, in August 2021, purchased Gnosis (GNO) tokens for a total of $17.3 million. Immediately after listing on popular trading platforms they sold the assets, taking profits.

“The profit from on-chain token trades amounted to more than $1.7 million. However, their true income is likely substantially higher, as some assets were transferred from wallets to exchanges rather than swapped directly for stablecoins,” Argus says.

For example, one address invested $360,000 in GNO six days before the token’s listing on Binance. After listing on the platform, the asset’s price rose rapidly — the investor liquidated the position, earning about $140,000 in proceeds.

The company noted that addresses linked to insider trading showed signs of activity up to April 2022.

The problem of insider trading in the crypto market is not new. In April 2022, influencer Cobie discovered an address that put “hundreds of thousands of dollars” into tokens featured in the Coinbase Asset Listing, 24 hours before it was published.

Found an ETH address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published, rofl pic.twitter.com/5QlVTjl0Jp

— Cobie (@cobie) April 12, 2022

Shortly after, Coinbase chief executive Brian Armstrong wrote:

“There is always a possibility that someone inside Coinbase, of their own will or not, may leak information to third parties engaged in illegal activity. We do not tolerate such behavior and monitor these practices, conducting investigations when necessary.”

Last Thursday, Coinbase general counsel Paul Grewal also acknowledged that unscrupulous traders sometimes manage to obtain insider information about upcoming listings.

He stressed that it is not always a matter of information leaking by people — sometimes insiders obtain data directly from the blockchain.

We recently posted a blog diving into potential front-running around our assets. We take these reports extremely seriously, so today I want to share an update on our asset listing process and how it’s helping prevent misuse of company information. 1/4 https://t.co/cZfZ1LxGR2

— paulgrewal.eth (@iampaulgrewal) May 19, 2022

“For example, sometimes before listing an asset we must test it in such a way that this is reflected in the blockchain. These signals are not obvious to most market participants, yet they are accessible to all and can be detected if someone looks hard enough,” he wrote.

Following the WSJ publication, Binance chief Changpeng Zhao said the company adheres to a “zero tolerance” policy toward insider trading practices.

This is why we even try not to let project teams know when they will be listed. But sometimes it can’t be completely avoided when we require technical assistance in wallet integration, etc.

Please use the above whistleblower email when you notice suspicious activity. 🙏

— CZ 🔶 Binance (@cz_binance) May 21, 2022

According to him, independent analysts checked the Argus wallets — none of them is linked to anyone on the Binance team.

“That’s why we try not to disclose listing information even to project teams. But sometimes this cannot be fully avoided when we require technical assistance in wallet integrations and so on,” Zhao wrote.

Earlier, in September 2021, Bloomberg reported that the US CFTC planned to to investigate Binance for insider trading and market manipulation.