What is Insider Trading and Why Is It Illegal?
Introduction
Insider trading in the crypto world has been a significant topic of discussion among media outlets recently. Different allegations have been put on multiple websites for insider trading.
However, the governing authorities have not taken any measures to tackle it. In this guide article, we will learn what is insider trading in the crypto space and why it should be avoided.
Understanding Insider Trading
Insider trading does not have any set definition; however, one can spot the insider trading phenomenon through these three factors.
Classic Material
It is when a person knows the inside information about any company or department. The person stays inside and has access to all personal and non-public information. Trading this information is an indication of insider trading.
Tipper Liability
Any person with access to personal credentials of any company or organization provides a tip to any other person to carry out trade on this lead.
Tippee Liability
When a person interchanges any personal information about a company or organization after receiving a specific tip.
Trading any personal information regarding any organization is considered illegal in the US, but it does not prevent anyone from exchanging the information with others.
In the case of digital wallets, the real identity of the owner is concealed. While dealing with the stock market, insider trading reveals information regarding upcoming events of a company. In the crypto market, the insiders use the information to manipulate market conditions and benefit significantly from extensive trade activities.
Why Insider Trading Should Be Discouraged?
Although it provides several benefits, insider trading should be discouraged and avoided at all costs in the crypto markets. Some significant reasons to avoid it in the crypto space are discussed below.
Complete Loss of Value
Actual traders could not take advantage of their investments due to insider trading. It causes the crypto market to lose its value. If any personal information of any organization is leaked through insider trading, it spreads rapidly, allowing everyone to benefit from a specific opportunity.
If the information about any new launch is released before time, multiple investors could buy it and then sell it accordingly, decreasing the opportunities for real investors.
Unfair Markets
When certain people receive access to a piece of information, this decreases the confidence of people to invest in the crypto market. The insiders have an additional benefit in the market. This decreases the chances of losses for them, while other people might face difficulty in trading.
Illegal Process
In the Securities Exchange Act of 1934, insider trading was declared illegal by law. However, it did not apply to the people in Congress. Later on, the public raised its voice against it, and it was made illegal for all in 2012.
Information Robbery
Using confidential information to get personal benefits in crypto is considered theft. Data from different companies can be stolen to get an edge in the crypto space. The one who steals the information is declared guilty. In some cases, the shareholders of an organization are involved in insider trading; therefore, it becomes difficult to spot it.
Alteration in Transparency of a Platform
Insider trading damages the transparency of any platform. Most crypto companies declare themselves transparent platforms, providing their customers complete access to all information. Therefore, it might be questionable when a few people get access to certain information while others cannot.
Rules for a Regular Crypto Trader
If someone is selling their crypto assets using insider trading even outside the US, the laws set by the SEC still apply to them. Whenever incidents of insider trading are detected in a specific region, all transactions there undergo strict regulations.
Conclusion
Insider trading is still a significant ambiguity in the crypto space that needs to be addressed and appropriately resolved. Traders should carry out trade activities cautiously and get advice from experts to avoid any losses.
