Coinbase, one of the largest online exchanges for buying and selling cryptocurrencies, is investigating possible insider trading after the price of a Bitcoin offshoot called Bitcoin Cash climbed hours before Coinbase announced support.
Due to its stature in the industry, a cryptocurrency trading on Coinbase—as opposed to smaller exchanges—is seen as a stamp of legitimacy. When Coinbase announced unceremoniously on Tuesday that it would allow trading for Bitcoin Cash, a controversial clone of Bitcoin with some small differences, the digital currency’s value skyrocketed from just under $3,000 USD per coin to above $6,000.
The celebratory mood was cut short, however, when Coinbase froze Bitcoin Cash trading on its platform and on GDAX, the company’s trading platform for professionals, early on Wednesday morning.
The reason, CEO Brian Armstrong wrote in a Medium post, is that the exchange has launched an investigation into possible insider trading leading up to the platform adding support. Indeed, if you look closely, Bitcoin Cash’s current price rally actually began on December 18, a day before Coinbase added support.
“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter,” Armstrong wrote. “If we find evidence of any employee or contractor violating our [trading] policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”
Armstrong noted that Coinbase’s internal policies prohibit employees from using insider information, like when a currency will be added to the platform, to boost their own trading positions. Employees are also prohibited from sharing such information with anybody outside the company, Armstrong continued.
“All Coinbase employees and contractors were explicitly prohibited from trading Bitcoin Cash and from disclosing our launch plans over a month ago,” Armstrong wrote, adding that this message was emphasized in emails sent to all employees and company meetings.
If insider trading is discovered at Coinbase, it would likely be a huge blow to one of the few cryptocurrency companies to gain some legitimacy along Bitcoin’s wild ride. Already, Redditors are calling for another company to step up and compete with Coinbase so that the company doesn’t have its thumb so firmly on the scales in the future.
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