One of the largest cryptocurrency exchanges, Coinbase, is carrying out an insider trading investigation, fearing that its own employees may have exploited its move into Bitcoin cash.
Coinbase, on Tuesday announced that it will start support for Bitcoin Cash, a fork of Bitcoin, but suspended trading within minutes after the Bitcoin Cash price surged almost three times higher.
The San Francisco based firm listed the coin on its exchange at 17:20 PST when it was valued at $3,500. BCH trading was frozen just four minutes after its launch on Coinbase’s GDAX platform. At the time of the suspension, the company quoted a price of $8,500 per coin.
The wild surge in Bitcoin Cash’s value was seen a day before Coinbase added full support for the asset. The decision was a complete surprise, no one knew it except internal workers.
It seems like the firm’s employees took advantage of the news and priorly bought BCH from other exchanges knowing that it was about to be introduced on Coinbase.
“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter,” wrote Coinbase CEO Brian Armstrong in a Medium post.
“If we find evidence of any employee or contractor violating our policies – directly or indirectly – I will not hesitate to terminate the employee immediately and take appropriate legal action.”
Armstrong said that since last month, all the staff at Coinbase, friends and family were strictly forbidden from trading Bitcoin Cash, while the company planned to add support for the coin on its platform. He said that he himself emailed the workers to keep the launch a secret. The same policy was observed when the exchange launched Ethereum last year and Litecoin this year.
I just published “Our employee trading policy at Coinbase” https://t.co/ydT9cTAdPR
— Brian Armstrong (@brian_armstrong) 20 December 2017
“We’ve had a trading policy in place for some time at Coinbase. The policy prohibits employees and contractors from trading on “material non-public information”, such as when a new asset will be added to our platform. In addition to trading restrictions, it prohibits communication of material non-public information outside the company. This includes to friends and family,” Armstrong explained.
There is a lot of confusion surrounding this matter and everyone is waiting for an explanation from Coinbase, who hasn’t revealed the actual reason till now.
No other exchanges showed the $8,500 tag, so it is speculated that the incline in BCH value just might be a pricing glitch, not the actual price. Although the company disabled all BCH trading and canceled orders, it is still not clear if any trades were executed at the higher price.
Bitcoin Cash was launched on Coinbase and GDAX on the’ same day’ unlike the launch of other cryptocurrencies in the past. The Global Digital Asset Exchange (GDAX) is Coinbase’s sister exchange providing a trading platform for professional investors. Liquidity and price quotes for Coinbase actually come from GDAX. Other cryptocurrencies like Litecoin were listed on GDAX months before making their way to Coinbase, in order to generate liquidity.
This time, the time to establish liquidity was reduced to only 1 hour and 20 minutes. Coinbase’s Ex-Director, Charlie Lee clarified on Twitter that it is “operationally hard” to launch an asset on both the platforms at the same time.
Coinbase, which was on the highest spot in the U.S. App Store this month is a messed up situation right now with disappointed customers at one hand and suspicious employees at the other. Things might get worse for the exchange if insider trading is proved. Redditors have started comparing Coinbase with other exchanges and some are even calling for another company to stand up and compete it.
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