How rampant is insider trading in the encryption world? On-chain data will betray you.

Question

When it comes to insider trading, many people think it's only something that those on Wall Street can handle. But in the encryption field, this has long become the norm — even more rampant than in TradFi.

How big is it? The data will speak.

According to research from the University of Technology Sydney, 27%-48% of encryption tokens show significant signs of insider trading when they go live on exchanges. This is not a low-probability event, but a systemic issue. Even more outrageous is the research showing that 56% of ICO tokens have evidence of insider trading when they launch.

In other words, those spikes you see, maybe five or six out of ten times are just insiders engaging in insider trading.

How to Play Insider Trading in the Encryption World

Three Major Strategies:

Get early access to launch information Employees of exchanges or project parties know in advance which platform a certain coin will be launched on, and even when it will be announced, allowing them to buy in at a low price. At the moment of launch, the information is made public, retail investors rush in to take over, while the insiders take the opportunity to sell off and profit from the price difference. Sui (SUI) once surged to three digits, triggering discussions in the community about possible insider trading.
Technical Update Early Arbitrage Information such as forks and protocol upgrades being leaked in advance allows holders to accumulate positions before the announcement and sell for arbitrage after the announcement.
Whale Manipulation Pump & Dump Large holders (usually project parties or funds) jointly drive up the coin price and then dump it at a high point. Retail investors see the surge and fear of missing out (FOMO) and jump in, only to be heavily trapped.

Real cases are truly shocking

Coinbase former manager Ishan Wahi case (2022) This guy works as a product manager at Coinbase and has access to information about newly launched cryptocurrencies. He shared insider information with his brother and friends, and the three of them jointly traded at least 25 types of encryption assets, 9 of which were identified as securities by the SEC. They made over 1.1 million dollars. What happened? Ishan was sentenced to 2 years in prison, and his brother to 10 months.

OpenSea NFT Scandal (2021) Nate Chastain, the product manager of the NFT trading platform OpenSea, used his position to gain advance knowledge of which NFTs would be featured on the homepage. He purchased these NFTs beforehand and then sold them after they were promoted to the homepage, easily earning $57,000. He was ultimately sentenced to 3 months in prison plus a $50,000 fine.

Long Island Name Change Case (2017) A company that made iced tea beverages suddenly changed its name to “Long Blockchain Corp,” claiming to shift to blockchain. It was during the crazy cryptocurrency boom of 2017, and the announcement caused the stock price to soar by 380%. However, the company did not produce any blockchain products at all. Three people who were aware of the plan bought in early and were later charged with insider trading, with two of them fined $400,000.

The Regulatory Iron Fist is Here

SEC Chairman Gary Gensler made it clear: if you fundraise through token issuance and buyers expect to profit from the efforts of the project team, then it is a security. This means that encryption assets are no longer a legal gray area, and insider trading will also be handled according to securities laws.

Punishment Intensity in the United States:

Sentence: Up to 20 years imprisonment
Fines: Individuals up to 5 million USD, enterprises up to 25 million USD
Civil fines: up to 3 times the illegal profits
Permanent ban from business: No serving as a senior executive of a listed company.

The transparency of blockchain is actually a double-edged sword

The SEC is now using on-chain data analysis to catch insiders. They monitor:

Abnormal fluctuations in trading volume (especially when there are no news releases)
Large transfers and wallet activities
Token liquidity mutation

Interestingly, the transparency of blockchain actually helps to combat insider trading. All transactions are recorded on the chain and can be traced, so they can't be hidden. But this is also why many people use mixers or cross-chain bridges to launder money.

Future Direction

An increasing number of encryption assets have been classified as securities by the SEC (such as XRP, ADA, SOL, etc.), which means:

✅ More compliant exchanges are introducing KYC/AML checks ✅ Insider trading risk tracing is easier. ✅ Regulatory scrutiny has been increasing year by year, and the cost of violations is rising.

However, off-chain information and DEX are still gray areas. Decentralized platforms inherently lack regulation, becoming a “safe haven” for insiders.

Conclusion

Insider trading in the crypto space is far more serious than you might think, but don't be too pessimistic—regulations are tightening, major platforms are self-regulating, and on-chain footprints are hard to erase.

Core advice: Do not chase popular newly listed coins, do not trust “rumors” outside of official channels, and stay away from small tokens on DEXs; this can help you avoid at least 80% of the pitfalls.