Former Coinbase employee’s brother admits to using confidential info for insider trading scam

The unregulated nature of cryptocurrencies, which is almost impossible to counterfeit, has turned it into a reliable investment vehicle for millennials and Gen Z. Currently, more than 300 million people across the globe own crypto, even as several governments are apprehensive about the virtual currency and others are yet to introduce regulations. India has decided to tax digital assets including crypto and NFTs, but still hasn’t given any clarity on legalising them.

With lack of regulation, also comes the risk of scams, such as crypto insider trading involving American cryptocurrency exchange Coinbase. Now the brother of a former product manager at the firm has admitted to making trades based on leaked confidential information in a US court. Nikhil Wahi and his friend Sameer Ramani got the information about forthcoming announcements by Coinbase in advance from his brother Ishan Wahi. The duo used data on new assets that would be traded on Coinbase, to make a profit of $1.1 million by investing in them.

More prevalent than meets the eye

Three Australian researchers investigated Coinbase and found that 25% of the exchange’s listings in the past four years were hit by insider trading. The scam was based on the Coinbase effect, which has emerged as a decisive factor in the rates of cryptocurrencies. It means that prices of any token which is listed on the exchange for trading, are more likely to surge.

The scamsters would buy the token in bulk based on prior knowledge, and then sell once rates went up after Coinbase’s official announcement. This is also the first insider trading scam to be detected in the crypto ecosystem.

Instability a cause for concern?

Fluctuating rates, which have continued more than a decade after they were launched, are also one of the factors that cast a doubt on cryptocurrencies. For instance Bitcoin reached its peak of more than $67,000 in November 2021, but crashed by 50% in May 2022. Other instances that raise concern are Dogecoin’s 20% surge following Elon Musk’s tweets, and DubaiCoin gaining 1000% in value after fake claims of being Dubai’s official crypto token.