So what exactly is insider trading? I recently saw many people in the community asking about this, especially when Sui's price jumped 120% in a month and there were immediate accusations of insider trading. Basically, insider trading is when you buy or sell stocks or assets based on confidential information that hasn't been made public yet. In traditional markets, the SEC in the U.S. is very strict about this, but in crypto? The situation is much more wild.

What’s interesting is that insider trading in the crypto world is actually more complex. The crypto market has long been considered wild—mostly unregulated and not closely monitored. This makes it a fertile ground for dishonest practices. You’ve probably seen crypto whales (whale) or project founders manipulating the market by buying or selling large amounts. Pump and dump schemes are common, where prices rise due to excessive buying and false promotional news, then a group of insiders sell at a planned time.

There are several ways insider trading occurs in crypto. First, people working at exchanges or projects can start trading before the coin is officially launched on major platforms. Second, information about technical updates like forks can be exploited for profit. Third, prior knowledge about listings on major exchanges is also used. But what’s crazy is that, according to a study from the University of Technology Sydney, insider trading occurs in 27-48% of all crypto listings. That’s a huge number.

Now, regarding the penalties for illegal insider trading—this is serious. In the U.S., it can lead to up to 20 years in prison per violation. Criminal fines for individuals can reach up to $5 million, and for corporations up to $25 million. There are also civil fines that can be three times the profits gained. People can be banned from serving as directors or officers of public companies. Reputations are destroyed, and money must be returned. Seriously.

I remember the Coinbase case in 2022—Ishan Wahi, a product manager, was suspected of informing his brother and friends about which coins would be added to the platform. They bought 25 coins and made over $1.1 million in profit. Ishan was sentenced to 2 years in prison, his brother got 10 months. His friend paid a $1.6 million fine. There’s also Nate Chastain from OpenSea, who used insider information to buy NFTs he knew would be featured on the homepage, then sold them when their value increased. He made $57,000, received 3 months in jail, and a $50,000 fine.

The most absurd case is Long Blockchain Corp. In 2017, the beverage company Long Island Ice Tea suddenly changed its name to Long Blockchain Corp, claiming they wanted to focus on blockchain. The stock immediately surged 380%. In reality, they never actually developed any blockchain technology. Three people involved in sharing information and buying shares before the announcement were fined a total of $400,000.

Now, the SEC is really serious. They keep labeling more cryptocurrencies as securities—including XRP, ADA, SOL. This means insider trading rules now apply to these assets. Gary Gensler, SEC Chair, keeps reminding that if someone raises money by selling tokens and buyers expect profits from their efforts, that’s technically a security.

What’s cool is that blockchain technology is actually transparent and traceable. It’s not as anonymous as people think. The SEC has developed sophisticated detection methods, monitoring trading volume spikes without news. Crypto exchanges are also starting to implement stricter KYC and AML checks. But decentralized exchanges (DEXs) and less regulated platforms remain problematic areas.

The industry is maturing. According to Solidus Labs, 56% of ICO token listings in 2017 showed evidence of insider trading. Now, there’s pressure even on decentralized platforms to implement stronger protections. Binance even offers a reward $5 million for information about insider trading. So if you have confidential, non-public information, better be careful before trading. Blockchain transparency can work against you.