WSJ Report Blows The Lid Off Insider Trading In Major Crypto Exchanges

Several anonymous crypto investors benefitted from the knowledge of upcoming listings on centralized exchanges like Binance and Coinbase, the Wall Street Journal revealed in an explosive report on insider trading in crypto.

With small investors flocking to crypto, the crypto market has continued to receive attention because of a lack of regulations and transparency, with regulators in several countries seeking more tighter control on how the industry works. Authors Ben Foldy and Caitlin Ostroff revealed in the article published Saturday that crypto wallets with large holdings, called whales, have accumulated huge wealth, taking advantage of prior knowledge of listings. A listing on major crypto exchanges like Binance or Coinbase is often followed by an increase in the price of a token.

In August 2021, a whale was able to gather $360,000 worth of Gnosis coins, a project that aims to build new market mechanisms for decentralized finance (DeFi). According to the data provided to WSJ by Argus, a firm that offers companies software to manage employee trading, four minutes after the announcement from Binance about listing Gnosis token, the whale wallet started selling its holding, and in a matter of four hours, it made a profit of over 40%. The price of the token rose from $300 to $410 within an hour and the whale's wallet balance exceeded $500,000.

Argus found 46 similar wallets with a combined purchase of over $17.3 million worth of Gnosis tokens, made shortly before the tokens were listed on Coinbase, Binance and FTX; and the total profit amassed by the whales was more than $1.7 million. However, WSJ said it believes that the true profits are significantly higher. It said the wallets’ owners cannot be determined through the public blockchain.

The CEO of Coinbase, Brian Armstrong, talked about the possibility of someone leaking information to whales about the listing process in a blog post on April 29. "We have zero tolerance for this and monitor for it," he said.

Armstrong acknowledged the possibility of such leaks but added that Coinbase has been conducting investigations where appropriate with outside law firms.

"If these investigations find that any Coinbase employee somehow aided or abetted any nefarious activity, those employees are immediately terminated and referred to relevant authorities (potentially for criminal prosecution)," Armstrong said.

A Binance spokesperson told WSJ that "there is a longstanding process in place, including internal systems, that our security team follows to investigate and hold those accountable that have engaged in this type of behavior, immediate termination being minimal repercussion."

FTX CEO Sam Bankman-Fried said in an email to WSJ that the exchange strictly bans its employees from sharing information and has policies in place to prevent such cases from happening.