Let's understand what insider trading in cryptocurrencies is, because this phenomenon is more serious than it seems at first glance.

In traditional finance, insider trading is buying or selling securities based on confidential information. But when it comes to the crypto market, the situation is much more complicated. For a long time, the industry was almost a wild west, and many participants actively took advantage of this.

I have noticed that insider trading is a problem that is much more widespread than officially acknowledged. Remember how whales and project founders manipulate prices by buying and selling large volumes before listing announcements? Or classic pump and dump schemes, where the price soars on fake news, and insiders dump coins at a pre-planned moment?

The most obvious example is the case with former Coinbase manager Ishan Wahi. The guy had access to information about upcoming listings, shared it with his brother and friend, and they made over $1.1 million. Wahi was sentenced to two years. A similar story happened with the head of OpenSea, who used insider information to buy NFT collections before they were featured on the platform’s homepage.

What’s interesting is that insider trading is not only a problem for centralized exchanges. In 2017, Long Island Ice Tea simply renamed itself Long Blockchain Corp, announcing a move into blockchain, and its stock soared by 380%. Three participants who knew about this in advance faced insider trading charges.

When the SEC began classifying crypto assets as securities, the rules became stricter. Now fines can reach up to $25 million for companies and $5 million for individuals, plus up to 20 years in prison for each violation. SEC Chairman Gary Gensler constantly repeats: if someone raises money by selling a token, and investors expect profits from the efforts of that group, then it’s a security, and all rules apply.

But here’s the paradox: blockchain is actually more transparent than it seems. All transactions are visible, and regulators have learned to track suspicious activity. According to studies, insider trading occurs in 27-48% of crypto asset listings, but more cases are being uncovered each year.

Decentralized exchanges still remain a gray area, but even there pressure is increasing. Centralized platforms are implementing strict KYC and AML checks. One major exchange even offered a reward of up to $5 million for information about insider trading on the platform.

Practically, if you trade cryptocurrencies and have access to confidential information, you need to be careful. Authorities are clearly not joking, and more cases are being uncovered each year. The industry is slowly but surely transitioning from the wild west to a regulated market.