Why is insider trading so rampant in the encryption world?

Question

When it comes to insider trading, most people think of the rules of Wall Street - but in the crypto world, this thing has long become an “industry chain.”

How common is insider trading in the crypto world?

The research data from the University of Technology Sydney is heart-wrenching: 27-48% of tokens showed signs of insider trading before being listed on exchanges. This is not a guess, it is solid evidence written on the chain.

Common traps include:

Insiders from the project party/exchange know the launch time in advance and crazily buy the dip.
“Pump and dump” combination: A group of people jointly buy to create hype, then collectively dump to harvest retail investors.
Technical update information was leaked in advance, insiders ambushed before the news was announced.

Sui(SUI) The 120% surge has sparked community complaints, and the officials have denied it, but investors know very well - this kind of thing is too common in the crypto world.

Real Cases: How They Were Caught

Coinbase Insider Trading Case: In 2022, former product manager Ishan Wahi had advance knowledge of which coins were going to be listed, and he notified his brother and friends. The three of them collectively bought 25 tokens and made $1.1 million. In the end, Ishan was sentenced to two years, his brother to ten months, while the friend lost $1.6 million.

The Nate Case of OpenSea: The head of the NFT market knew in advance which NFT projects were going to be officially recommended, bought them first, and then sold them after the recommendation when the price soared. He made $57,000, resulting in 3 months in prison and a $50,000 fine.

Long Blockchain's operation is even more extreme: In 2017, a company selling iced tea changed its name to “Long Blockchain Corp” in an attempt to ride the blockchain wave, and its stock price soared by 380% at one point. It was later discovered that someone had insider information before the name change and had preemptively positioned themselves. Two behind-the-scenes players were each fined $200,000.

Why is the crypto world so difficult to manage?

In plain terms, there is still a gap in regulation:

DEX has no real barriers — Decentralized exchanges do not have KYC/AML checks, allowing insiders to remain hidden using multiple wallets.
Information asymmetry is too severe—project parties, exchanges, and market makers hold a large amount of non-public information, and retail investors are always the last to know.
The “transparency” of blockchain has become a joke—although on-chain data is public, tracking the flow of funds requires a high level of technical analysis skills, which most people cannot understand.

Regulation is tightening up

The U.S. SEC is now classifying an increasing number of crypto assets as “securities” (including XRP, ADA, SOL), which means that insider trading laws are starting to apply.

The punishment is indeed severe:

Up to 20 years imprisonment + 5 million dollars in fines
The company can be fined up to 25 million dollars.
Civil compensation may be 3 times the illegal income.

Binance even offered a reward of 5 million dollars for whistleblowers — this is rare in the industry.

How to move forward?

SEC Chairman Gensler made it very clear: as long as you sell tokens with the expectation that they will appreciate through your efforts, they are considered securities, and insider trading rules apply.

The underlying logic is——blockchain is not that anonymous. All transactions are on the chain, and forensics teams can track them. Exchanges are also strengthening compliance (KYC/AML), and the early days of rampant growth are coming to an end.

Ironically, the crypto world originally touted “transparency and decentralization,” but these very characteristics have become tools for regulation—your every action is recorded.

Core Viewpoint: Insider trading is rampant in the crypto world, and the fundamental reason is that the market is still too young and regulation is not mature enough. However, as mainstream assets are classified as securities, the number of law enforcement cases increases, and exchanges self-regulate, this gap is quickly closing.