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Unpopular opinion incoming: the concept of insider trading is stupid, and even more stupid applied to cryptocurrency. People will always find ways to profit fro

Unpopular opinion incoming: the concept of insider trading is stupid, and even more stupid applied to cryptocurrency. People will always find ways to profit from privileged information. The least careful ones will just keep getting caught while the most careful reap the rewards and get away with it. Cryptocurrency isn't even a regulated asset, how can someone be 'insider trading' it? What insider trading really means is a middle class person profiting in a way the ruling class don't like. Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade.

ouid 4y ago
trading on information asymmetry is usually referred to as fraud. insider trading is just a subcategory that is relatively easy to prosecute and prevent
karpierz 4y ago
By this same logic, fraud shouldn't be a crime. People will always find a way to profit by misleading people, and the most careful ones will reap the rewards and get away with it.
- skidd0 4y ago
  Knowing privileged info and acting on it as an individual is not he same as intentionally misleading another person.
  - pavlov 4y ago
    In a market that promises information symmetry, there’s no difference between the two.
    - Dracophoenix 4y ago
      That's incorrect. Due diligence is expected of any person who enters a contract. This forum was recently poopooing Musk for violating his purchase contract even though he may have had legitimate concerns of Twitter keeping secret its number of bot accounts. If you want to make the case that the ignorance of one party is sufficient to accuse the other of fraud, the burden of proof is on you.
  - tylersmith 4y ago
    When you gain that information under the understanding you won't abuse it, solely for the purposes of abusing it, you have committed fraud.
- j0hnyl 4y ago
  Who is the victim here?
  - idiotsecant 4y ago
    The victim of insider trading is everyone else participating in the market that is not insider trading. Which, given the widespread reliance on 401k's for most of our accumulated wealth, is all of us.
    - j0hnyl 4y ago
      But crypto is not an equity and your 401k is not tied up in it at all?
  - munificent 4y ago
    It is a shared good that benefits all participants for a market to be efficient. Insider trading reduces market efficiency.
    - siftrics 4y ago
      It literally does the opposite. It pushes the price in the direction it's going to go when the information is made public.
      - munificent 4y ago
        You're only thinking of the first-order effect. If insider trading is allowed then, yes, those who have access to inside information can trade on it more efficiently. But it also highly incentivizes market participants to hide information. In a world where insider trading is allowed, anyone who has access to inside information can now personally monetize it as long as that information does not get out to the wider market. You're basically paying people to manufacture information asymmetry. As an emergent effect, that does not lead to the widely available information needed for a market to perform efficiently.
        4y ago
valvar 4y ago
>Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade. I'm pretty sure it isn't.
- drexlspivey 4y ago
  https://nypost.com/2022/07/16/paul-pelosi-buys-tech-chip-stocks-before-big-subsidy-vote/ https://nypost.com/2022/07/16/paul-pelosi-buys-tech-chip-sto...
snarf21 4y ago
The point is that they can be caught and then prosecuted. It won't stop it but it makes it harder. People will always break the law. The point is to make that harder and have a punishment for doing so. We need better laws to prevent lawmakers from profiting as well.
judge2020 4y ago
> Cryptocurrency isn't even a regulated asset, how can someone be 'insider trading' it? Because the FTC says it’s a regulated asset and they have the world’s largest country to enforce this with courts and police action.
endisneigh 4y ago
This logic is dumb. Scams also should be legal I guess? As well as theft.
- c7DJTLrn 4y ago
  Never said it should be legal. I said it was stupid as a concept. The alternative is to reform the market so it's a level playing field for everyone regardless of what you know.
  - avisser 4y ago
    > reform the market so it's a level playing field for everyone regardless of what you know You want to take away the power of knowledge? Good luck in human society. (Honestly, on its face, this is an incredibly naive take.)
InefficientRed 4y ago
The solution to the issues you identify, which are real, is to improve the equitabiliy of the US justice system and strengthen laws against insider trading. > The least careful ones will just keep getting caught while the most careful reap the rewards and get away with it. The clearance rate for homicide in the USA hovers somewhere between 50% and 70% most years, and the clearance rate for rape in the US is much lower at 32% in 2018. > What insider trading really means is a middle class person profiting in a way the ruling class don't like. Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade. Wealth is probably also helpful if you want to get away with rape or murder. Also, insider trading is bad.
rideontime 4y ago
Gee, if people will get away with crimes anyway, why bother making anything illegal?
ajross 4y ago
The accused was using their access within Coinbase to front run trades and announcements. That's not "middle class" trading under any reasonable definition and I can't imagine why you think it should be legal. How would any market function if the market makers are allowed to cheat with impunity.
idiotsecant 4y ago
No, insider trading is clearly not 'a middle class person profiting in a way the ruling class don't like' - it's using information you have that most of the market doesn't in order to take money from them. The answer to wealthy people being able to get away with insider trading easier is not to throw the baby out with the bathwater and say that all insider trading is fine, it's to actually enforce insider trading laws. It's not some impossible task to do a better job enforcing those rules, it's just not popular with the people who (shocking) make money by exploiting this kind of information asymmetry. If we decided to make it a policy priority tomorrow, the problem would be much, much smaller.
- c7DJTLrn 4y ago
  Insider trading laws don't mean anything. Person X can send encrypted messages to person Y who lives half way around the world to make a trade and they will be near impossible to discover unless person X is surveilled. Even then, person Y can just get away with it.
  - mtoner23 4y ago
    Just because you can get away with a crime doesnt mean its not a real crime
    - c7DJTLrn 4y ago
      That's not my point. Insider trading is so easy that anybody with privileged information can do it and even get away with it if they're cautious. Instead of working tirelessly just to catch the sloppy 1% we should reform the market so that nobody has an advantage because of what they know.
      - bornfreddy 4y ago
        Sure. Any idea how to do that?
jonhohle 4y ago
Re: congress, I think there should be a public fund that mirrors the trades of reps and senators and a platform that enforces their trades happen concurrently with public funds. The Pelosi’s seem to have impeccable market timing that, I’m sure coincidentally, seems to correlate with policy votes. Certainly, elected officials working for our best interest would want to share their success with their constituents.
pavlov 4y ago
The essence of the cryptocurrency narrative is laid bare here. Sure, maybe it looks like it’s scamming desperate people out of their life savings, but ignore that, really it’s just a middle class person profiting in a way that the ruling class doesn’t like! Why do you hate the middle class getting rich? You must be in league with the globalist bankers.
woodruffw 4y ago
A variation of this comment is made on HN whenever insider trading comes up, leaving me no recourse but to post the same response every time: insider trading is criminalized not least because it is corrosive to public trust in financial institutions. Your examples (Congress, CEOs) demonstrate this: main street investors have overwhelmingly lost faith in those institutions over the last two generations. The solution isn't to race to the bottom; it's to make insider trading universally illegal.
mtoner23 4y ago
This is a psycho take. We banned insider trading. Allowing insider trading would obviously help the ruling class. CEOs cannot insider trade. And obviously we should just ban congress to trade stocks.
- c7DJTLrn 4y ago
  >CEOs cannot insider trade Well, they do. All the time. And they get away with it.
  - xsmasher 4y ago
    Most CEOs can not sell stock without announcing it well ahead of time, or during scheduled periods. What form does this insider trading take?
deleted 4y ago
[deleted]
KoftaBob 4y ago
For a free market to have "perfect competition", one of the requirements is that "Buyers have complete or perfect information (in the past, present, and future) about the product being sold and the prices charged by each firm." Information asymmetry is a big factor acting against a free market that is "perfectly competitive". In the US, commerce regulations are more or less meant to to push the market as close as possible to this theoretical state of perfect competition. Insider trading, front running, or any similar forms, directly act against this goal and increase information asymmetry. https://www.investopedia.com/terms/p/perfectcompetition.asp https://www.investopedia.com/terms/p/perfectcompetition.asp

ouid 4y ago

trading on information asymmetry is usually referred to as fraud. insider trading is just a subcategory that is relatively easy to prosecute and prevent

karpierz 4y ago

By this same logic, fraud shouldn't be a crime. People will always find a way to profit by misleading people, and the most careful ones will reap the rewards and get away with it.

skidd0 4y ago
Knowing privileged info and acting on it as an individual is not he same as intentionally misleading another person.
- pavlov 4y ago
  In a market that promises information symmetry, there’s no difference between the two.
  - Dracophoenix 4y ago
    That's incorrect. Due diligence is expected of any person who enters a contract. This forum was recently poopooing Musk for violating his purchase contract even though he may have had legitimate concerns of Twitter keeping secret its number of bot accounts. If you want to make the case that the ignorance of one party is sufficient to accuse the other of fraud, the burden of proof is on you.
- tylersmith 4y ago
  When you gain that information under the understanding you won't abuse it, solely for the purposes of abusing it, you have committed fraud.
j0hnyl 4y ago
Who is the victim here?
- idiotsecant 4y ago
  The victim of insider trading is everyone else participating in the market that is not insider trading. Which, given the widespread reliance on 401k's for most of our accumulated wealth, is all of us.
  - j0hnyl 4y ago
    But crypto is not an equity and your 401k is not tied up in it at all?
- munificent 4y ago
  It is a shared good that benefits all participants for a market to be efficient. Insider trading reduces market efficiency.
  - siftrics 4y ago
    It literally does the opposite. It pushes the price in the direction it's going to go when the information is made public.
    - munificent 4y ago
      You're only thinking of the first-order effect. If insider trading is allowed then, yes, those who have access to inside information can trade on it more efficiently. But it also highly incentivizes market participants to hide information. In a world where insider trading is allowed, anyone who has access to inside information can now personally monetize it as long as that information does not get out to the wider market. You're basically paying people to manufacture information asymmetry. As an emergent effect, that does not lead to the widely available information needed for a market to perform efficiently.
      - 4y ago

valvar 4y ago

>Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade. I'm pretty sure it isn't.

drexlspivey 4y ago
https://nypost.com/2022/07/16/paul-pelosi-buys-tech-chip-stocks-before-big-subsidy-vote/ https://nypost.com/2022/07/16/paul-pelosi-buys-tech-chip-sto...

snarf21 4y ago

The point is that they can be caught and then prosecuted. It won't stop it but it makes it harder. People will always break the law. The point is to make that harder and have a punishment for doing so. We need better laws to prevent lawmakers from profiting as well.

judge2020 4y ago

> Cryptocurrency isn't even a regulated asset, how can someone be 'insider trading' it? Because the FTC says it’s a regulated asset and they have the world’s largest country to enforce this with courts and police action.

endisneigh 4y ago

This logic is dumb. Scams also should be legal I guess? As well as theft.

c7DJTLrn 4y ago
Never said it should be legal. I said it was stupid as a concept. The alternative is to reform the market so it's a level playing field for everyone regardless of what you know.
- avisser 4y ago
  > reform the market so it's a level playing field for everyone regardless of what you know You want to take away the power of knowledge? Good luck in human society. (Honestly, on its face, this is an incredibly naive take.)

InefficientRed 4y ago

The solution to the issues you identify, which are real, is to improve the equitabiliy of the US justice system and strengthen laws against insider trading. > The least careful ones will just keep getting caught while the most careful reap the rewards and get away with it. The clearance rate for homicide in the USA hovers somewhere between 50% and 70% most years, and the clearance rate for rape in the US is much lower at 32% in 2018. > What insider trading really means is a middle class person profiting in a way the ruling class don't like. Apparently it's legal for Congress to insider trade. It's legal for CEOs to insider trade. Wealth is probably also helpful if you want to get away with rape or murder. Also, insider trading is bad.

rideontime 4y ago

Gee, if people will get away with crimes anyway, why bother making anything illegal?

ajross 4y ago

The accused was using their access within Coinbase to front run trades and announcements. That's not "middle class" trading under any reasonable definition and I can't imagine why you think it should be legal. How would any market function if the market makers are allowed to cheat with impunity.

idiotsecant 4y ago

No, insider trading is clearly not 'a middle class person profiting in a way the ruling class don't like' - it's using information you have that most of the market doesn't in order to take money from them. The answer to wealthy people being able to get away with insider trading easier is not to throw the baby out with the bathwater and say that all insider trading is fine, it's to actually enforce insider trading laws. It's not some impossible task to do a better job enforcing those rules, it's just not popular with the people who (shocking) make money by exploiting this kind of information asymmetry. If we decided to make it a policy priority tomorrow, the problem would be much, much smaller.

c7DJTLrn 4y ago
Insider trading laws don't mean anything. Person X can send encrypted messages to person Y who lives half way around the world to make a trade and they will be near impossible to discover unless person X is surveilled. Even then, person Y can just get away with it.
- mtoner23 4y ago
  Just because you can get away with a crime doesnt mean its not a real crime
  - c7DJTLrn 4y ago
    That's not my point. Insider trading is so easy that anybody with privileged information can do it and even get away with it if they're cautious. Instead of working tirelessly just to catch the sloppy 1% we should reform the market so that nobody has an advantage because of what they know.
    - bornfreddy 4y ago
      Sure. Any idea how to do that?

jonhohle 4y ago

Re: congress, I think there should be a public fund that mirrors the trades of reps and senators and a platform that enforces their trades happen concurrently with public funds. The Pelosi’s seem to have impeccable market timing that, I’m sure coincidentally, seems to correlate with policy votes. Certainly, elected officials working for our best interest would want to share their success with their constituents.

pavlov 4y ago

The essence of the cryptocurrency narrative is laid bare here. Sure, maybe it looks like it’s scamming desperate people out of their life savings, but ignore that, really it’s just a middle class person profiting in a way that the ruling class doesn’t like! Why do you hate the middle class getting rich? You must be in league with the globalist bankers.

woodruffw 4y ago

A variation of this comment is made on HN whenever insider trading comes up, leaving me no recourse but to post the same response every time: insider trading is criminalized not least because it is corrosive to public trust in financial institutions. Your examples (Congress, CEOs) demonstrate this: main street investors have overwhelmingly lost faith in those institutions over the last two generations. The solution isn't to race to the bottom; it's to make insider trading universally illegal.

mtoner23 4y ago

This is a psycho take. We banned insider trading. Allowing insider trading would obviously help the ruling class. CEOs cannot insider trade. And obviously we should just ban congress to trade stocks.

c7DJTLrn 4y ago
>CEOs cannot insider trade Well, they do. All the time. And they get away with it.
- xsmasher 4y ago
  Most CEOs can not sell stock without announcing it well ahead of time, or during scheduled periods. What form does this insider trading take?

deleted 4y ago

[deleted]

KoftaBob 4y ago

For a free market to have "perfect competition", one of the requirements is that "Buyers have complete or perfect information (in the past, present, and future) about the product being sold and the prices charged by each firm." Information asymmetry is a big factor acting against a free market that is "perfectly competitive". In the US, commerce regulations are more or less meant to to push the market as close as possible to this theoretical state of perfect competition. Insider trading, front running, or any similar forms, directly act against this goal and increase information asymmetry. https://www.investopedia.com/terms/p/perfectcompetition.asp https://www.investopedia.com/terms/p/perfectcompetition.asp