Coinbase Investigation Finds There Was No Insider Trading Ahead of Bitcoin Cash Listing

  • An internal investigation found that there was no insider trading ahead of Coinbase's BCH listing.
  • The company still has to deal with a class action lawsuit and a potential CFTC investigation.

An internal investigation conducted by popular San Francisco-based cryptocurrency exchange Coinbase reportedly found that there was no insider trading ahead of its Bitcoin Cash (BCH) listing, despite a suspicious price rise.

According to Fortune, the exchange hired two “well-known” US law firms to conduct a “months-long probe” to find out whether insider trading took place. Last year, Bitcoin Cash’s price surged, shortly before Coinbase publicly announced it was listing the cryptocurrency.

This saw various analysts point to insider trading, as those who knew about the listing were likely stocking up to take advantage of the price rise cryptos listed on the San Francisco-based exchange see.

Addressing Fortune, a Coinbase spokesperson restated that the company would “not hesitate to terminate an employee of contract and/or take appropriate legal action” if evidence pointed toward insider trading – a stance the company’s CEO Brian Armstrong took last year.

The investigation, however, reportedly revealed no insider trading took place. The spokesperson was quoted as saying:

We can report that the voluntary, independent internal investigation has come to a close, and we have determined to take no disciplinary action.

Coinbase spokesperson

An anonymous source close to Coinbase further revealed that a staff lawyer discussed the investigation’s outcome with employees during a meeting last week, presumably meaning the cryptocurrency’s surge prior to the announcement was merely coincidental.

Notably, Coinbase’s initial attitude towards Bitcoin Cash was dismissive, as when the cryptocurrency forked from the Bitcoin blockchain it told users who wanted it to look elsewhere as it wasn’t planning on supporting it.

Later on, it revealed it distributed the “airdropped” BCH to users who held BTC on its platforms at the time of the fork, so they could withdraw their funds and use them elsewhere. In a surprising move, Coinbase then announced it was adding BCH to Coinbase and the Global Digital Asset Exchange (GDAX), which since rebranded to Coinbase Pro.

A flood of trades filled its orderbooks, to the point Coinbase was forced to temporarily halt Bitcoin Cash trading altogether. At the time, Armstrong answered public outcry over insider trading by claiming Coinbase would fire and take legal action against any employee who leaked confidential information.

The investigation doesn’t clear coinbase, however. A class action lawsuit was filed against it last year, by customers accusing the company of negligence and consumer protection law violations. Lynda Grant, a lawyer representing the plaintiffs, added that she believes the US Commodity Futures Trading Commission (CFTC) is investigating the exchange over the BCH incident.

To prevent a similar scenario, Coinbase recently announced it was considering adding five new cryptocurrencies so users are aware: Cardano (ADA), Basic Attention Token (BAT), Stellar Lumens (XLM), Zcash (ZEC), and 0x (ZRX). After being mentioned, all five tokens saw their prices rally in anticipation.

The San Francisco-based exchange recently established a political action committee (PAC), an organization formed to raise funds on behalf of candidates running for public office. Its ads also recently returned to Google and Instagram, in a significant policy reversal.

Chinese Yuan 'Inversely Correlated' with Bitcoin, Amidst US-China Trade Wars

Since January 2018, China and the US have been involved in an intense trade war in which both countries have significantly increased tariffs on imported goods and services.

Due partly to the rising tension between the two countries, the Chinese yuan (CNY) has been losing value against the USD. During the same time period, the price of bitcoin (BTC) and other major cryptoassets has been surging.

As noted by the South China Morning Post (SCMP), the value of BTC, the world’s most dominant cryptocurrency, increased by 26.5% to $7,878 during the time period from May 5 to May 17. Notably, US President Donald Trump had announced on May 5 that he would further increase tariffs on goods imported from mainland China.

Chinese Yuan Weakens as Nation’s Government Responds to Increased Tariffs

The SCMP pointed out that the yuan dropped to its lowest level since the past six months after the Chinese government responded to Trump administration’s decision to impose higher tariffs on China.

Commenting on the price fluctuations of both the yuan and bitcoin, Garrick Hileman, a Macroeconomics Researcher at London School of Economics (LSE) and Head of Research at Blockchain.com, remarked:

We are observing a strong inverse correlation between the [Renminbi] RMB’s value and bitcoin, meaning that recent RMB declines over trade tensions have been closely matched by increases in the value of bitcoin.

“Correlation Does Not Necessarily Equal Causation”

Hileman also mentioned that we “cannot be 100% certain” that the bitcoin price has been increasing due to heightened concerns regarding trade tensions and the corresponding decline in the value of the yuan. The blockchain researcher stated:

Trade tensions and declines in the RMB’s exchange rate as correlation does not necessarily equal causation.

Hileman, who earned his Phd from LSE, revealed:

This is not the first time we’ve seen significant increases in the value of bitcoin taking place alongside yuan concerns.

He added that there’s “growing recognition of bitcoin as ‘digital gold’ and it being used as a hedge against various macroeconomic risks.”

“This Year, the Narrative Is Bitcoin, Bitcoin, Bitcoin”

According to the SCMP, bitcoin’s price may have surged recently due to the generally positive remarks made about it at the Consensus 2019 conference.

Meltem Demirors, the Chief Strategy Officer at CoinShares, a crypto treasury management firm, has also confirmed recently that the narrative this year has been mostly about Bitcoin. Demirors revealed that both institutions and retail investors are “feeling good” and are “more confident” about the long-term potential of Bitcoin and the evolving ecosystem that supports it.