13 ms·

Insider Trading in Cryptocurrency Markets

99 points by IfOnlyYouKnew 4y ago

prvit 4y ago
- edgyquant 4y ago
  Please elaborate on why that is
  - prvit 4y ago
    Insider trading results in more accurate pricing.
    - last_responder 4y ago
      How does that work? Just saying something does not make it true.
      - prvit 4y ago
        Price discovery is a major function of markets, insider trading adds more information and benefits all parties by allowing for more accurate pricing of whatever is being traded.
        toomuchtodo 4y ago
        US regulators are targeting fairness vs most efficient markets and price discovery.
        prvit 4y ago
        Indeed, but their definition of “fairness” is rather dishonest. This doesn’t benefit 99% of market participants. US regulators would rather specialist companies with the fastest algorithms and connections to process corporate announcements reap all the benefits.
        renewiltord 4y ago
        Yeah, but that's not the only function. Which is why US exchanges have the notion of the Intermarket Sweep Order, etc.
        prvit 4y ago
        ISOs directly aid price discovery, no?
        renewiltord 4y ago
        Don't they impede price discovery by increasing the cost to move the price?
        prvit 4y ago
        If you focus only on price discovery happening in a specific market center, sure. However, because it’s 2022 and we have the internet and all I’m not sure it really makes sense to focus on specific market centers instead of the market as a whole. Of course HFT makes this far more complicated so it’s difficult to come up with a clear answer in either direction. The Clean sweep study (https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff2975/chakravarty2012.pdf?download=true https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff297...) seems to suggest that ISOs have a greater impact on prices and add more information to markets than “regular” orders.
        renewiltord 4y ago
        Interesting. Thank you.
        ajsharp 4y ago
        Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not real buy-side demand pricing information because the insider (typically) intends to sell as soon as the price pops, once more market participants have been pulled into the trade because it's going up -- key knowledge the insider knew the market did not. Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
        prvit 4y ago
        > Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not illegal because insiders possess knowledge the rest of the market does not. Insider trading is illegal because it creates a false perception of unfairness among less sophisticated market participants. (There are other decent reasons too, Matt Levine has written about this extensively too. Yours isn’t one of them) > Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule. This only makes sense in a context where all parties have access to equal resources, but that’s not true. A hedge fund paying visa for transaction flow, or flying spy planes above a factory to track production will have more information than other participants.
        ajsharp 4y ago
        You're so far down the contrarian rabbit hole on this take, you're arguing the nuances of why, precisely, insider trading is illegal. It doesn't really matter why, it is, and for good reasons (agree with or don't, whatever). This ain't the hill.
        prvit 4y ago
        It’s not a “contrarian rabbit hole”. Whether or not insider trading should be illegal is a hotly contested topic among economists. >It doesn't really matter why, it is, and for good reasons Would you like to share the good reasons why it doesn’t matter?
        notahacker 4y ago
        Insider trading can lead to more accurate pricing at a particular time by releasing information earlier than it otherwise would have been released (albeit selectively in a way designed to maximise harm to people on the other side of the trade the insiders usually have some sort of fiduciary duty to). It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. Suffice to say the dominant trend in crypto markets is not rapid convergence on a relatively stable price...
        prvit 4y ago
        > (albeit selectively in a way designed to maximise harm to people the insiders usually have some sort of fiduciary duty to). That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. > It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. In the US that’s just called “wire fraud” and not “insider trading”.
        notahacker 4y ago
        > That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. Of course there is. When prices go up, insiders profit at the expense of shareholders who sell to them. In the absence of insider traders, non-insider shareholders collectively achieve better returns; ergo they are harmed by the presence of insider trading on positive or negative information. (The only time it wouldn't be the case is if the prices move in the opposite direction to the one the insiders are expecting due to some other unanticipated development which is far more significant than their information advantage) > In the US that’s just called “wire fraud” and not “insider trading”. Much easier to prove the insider trading in the run up to a profit warning than prove an entity was intentionally mismanaged to create that opportunity and its earlier predictions of success were fraudulent and not just incorrect.
        stjohnswarts 4y ago
        If you want insider trading then take the company private and do all the trading you want. Public companies and investors should be able to count on insider trading being illegal. The punishments need to much more severe and extremely hard to get out of in court.
    - arcticbull 4y ago
      Pricing is equally accurate, the difference is latency. That reduction in latency though comes at a high cost.
      - prvit 4y ago
        It’s not equally accurate. Markets are supposed to price in the future. “Latency” just means that the future isn’t priced in, which results in less accurate pricing.
        arcticbull 4y ago
        The price reflects the consensus knowledge of participants. Insiders cannot participate. Therefore, the price is accurate. Addition of new knowledge will happen in time, therefore I maintain this is a latency issue not an accuracy issue. The markets don't price in the future, they guess it.
        prvit 4y ago
        Latency is inaccuracy, just on a different axis of the graph. Insider trading adds to consensus knowledge.
        BbzzbB 4y ago
        Saying insider trading of material non-public information is beneficial to free markets because it allows for a handful of connected individuals to front-run the market on non-public news is certainly a take. A really weird one, but a take nonetheless.
        prvit 4y ago
        Why do you think it’s better that some hedge fund with specialist algorithms and infrastructure front-runs the market instead? It’s a handful of connected individuals in either case.
        BbzzbB 4y ago
- vkou 4y ago
  For price discovery? Maybe. But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? And it's definitely not beneficial when the insider has the active ability to influence the price of the asset. If an executive could make money by shorting his firm's stock, the optimal strategy for every executive would be to sabotage their firm, while shorting its stock. The latter two reasons are why it's illegal, by the way. It undermines confidence in markets, and it creates perverse, value-destroying incentives.
  - prvit 4y ago
    > But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. > The latter two reasons are why it's illegal, by the way. It undermines confidence in markets, and it creates perverse, value-destroying incentives. This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice?
    - bee_rider 4y ago
      We should just make it illegal to do bad things, then we won't have to write all these really specific laws.
      - prvit 4y ago
        In this context, the bad thing (sabotaging your publicly traded company) is illegal regardless of the not-bad thing (insider trading).
    - vkou 4y ago
      > This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. Or if you think of markets as a way to encourage investment into the economy. Why should I invest if insiders are going to be scooping up a lion's share of the windfalls? Anything that reduces the ROI on my investments creates an incentive for me to not invest. > This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice? 1. Without these incentives, you have far fewer reasons to behave unethically and illegally. 2. You usually can't tell the difference between accidental incompetence and malicious sabotage. Being able to do sabotage under the guise of incompetence, while having a profit motive is a colossal conflict of interest, and any system that encourages it is going to produce a lot of poor outcomes. 3. When the executive doesn't benefit from either incompetence, or sabotage, and their rewards are based on good performance (stocks go up), their incentives are aligned to chase good performance. Better price discovery is a good thing, but in this case, the juice is not worth the squeeze.
- tppiotrowski 4y ago
  Apples to oranges. Price discovery is better but the insiders reap 99% of the $$$.
  - prvit 4y ago
    So? Nobody is deprived of anything. You’d prefer for whatever company has the fastest algorithms to process corporate announcements to reap 99% of the $$$? How is that any better?
    - tppiotrowski 4y ago
      I sell you a lemon car. You benefit because you have a car and I benefit because you paid me money. Which one of us got the better deal? Edit: algorithmic option is available to anyone but insider trading rewards a select few "insiders". No meritocracy.
      - prvit 4y ago
        > Edit: algorithmic option is available to anyone but insider trading rewards a select few "insiders". No meritocracy. So what? How does artificially helping algorithmic traders help society at large, or even just market participants at large? This is just creating a worthless industry that could be entirely replaced by insider trading.
        jabits 4y ago
        Man, you should take a finance class…
        prvit 4y ago
        I have an Economics with Accounting degree from LSE actually
        skinnymuch 4y ago
- alexb_ 4y ago
  I don't think you understand how asymmetric information in markets works. I would suggest reading "The Market for Lemons".
  - prvit 4y ago
    Information asymmetry is a fundamental, unavoidable feature of the markets. It’s not illegal for me to pay Visa and Mastercard for an exclusive deal to access transaction flow and trade on the basis of that information. I will in fact be trading based on material nonpublic information, but not in the sense the law forbids.
    - selectodude 4y ago
      Uh, you sure? >The Securities and Exchange Commission announced today that it charged Bonan Huang and Nan Huang (the "Defendants") with engaging in illegal insider trading on the basis of material, non-public information about the sales of predominantly consumer retail corporations. >In its complaint filed in the federal court in the Eastern District of Pennsylvania on January 21, 2015, the SEC alleges that the Defendants worked for a large credit card issuer as data analysts tasked with investigating fraudulent credit card activity. While employed there, Defendants searched their employer's nonpublic database that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corporations. The Defendants conducted hundreds, if not thousands, of keyword searches of this database. These searches, which were not done in furtherance of their employment duties, allowed the Defendants to view and analyze aggregated sales data for the companies they searched. The complaint further alleges that, in a breach of their duty to their employer, the Defendants made profitable securities transactions on the basis of this material, non-public information in advance of the public release of quarterly sales announcements by these companies. https://www.sec.gov/litigation/litreleases/2015/lr23179.htm https://www.sec.gov/litigation/litreleases/2015/lr23179.htm
      - prvit 4y ago
        Yes, I’m sure. What you pasted is perfectly in line with what I said. Those guys did a bad thing because they deprived their employer of the opportunity to profit from this data.
- stjohnswarts 4y ago
  No it's not. It allows easy market manipulation. How can the market succeed with things like pump and dump, insider's have extra knowledge and such? There's a good reason why it's illegal and punishable. I only wish the people caught did about 5X as much time including Congress members.
  - prvit 4y ago
    Market manipulation is illegal regardless of whether or not insider trading is illegal.
grudg3 4y ago
For me the word cryptocurrency and scam are synonyms. And in my mind people defending it on the internet are inside the pyramid scheme and trying to justify their investment. Just one of the many cancers affecting our current society.
- gjs278 4y ago
- senttoschool 4y ago
  People here who are defending it benefit from the scams. Instead of working on projects that prevent scam using blockchains, they participate in it. You can work in crypto as long as you have no morals.
  - tromp 4y ago
    As author of the Cuckoo Cycle Proof-of-Work puzzle [1] and core developer of a blockchain that offers zero financial rewards for its creators and early adopters, I strongly take issue with your characterization. I agree that most projects are cash grabs, but that's no excuse for insulting all developers without exception. [1] https://github.com/tromp/cuckoo https://github.com/tromp/cuckoo
    - arcticbull 4y ago
      So an intentionally-slow multi-player Excel game that wastes power without rewarding people financially.
      - ziddoap 4y ago
        I can pick just about any project that's appeared here or elsewhere and be just as uncharitable and miserable about it if I wanted to. What's your point? What does this add to the conversation?
    - halfmatthalfcat 4y ago
arberx 4y ago
Shocking.
TakeBlaster16 4y ago
They looked at Coinbase listing announcements from September 25, 2018 to May 1, 2022, and tracked four wallets that bought listings ahead of the announcements and earned an estimated profit of 1003 ETH ($1.5 million). Of course, if you don't want to give those people your money, there is a simple solution: Don't buy shitcoins.
- dimgl 4y ago
  > Of course, if you don't want to give those people your money, there is a simple solution: Don't buy shitcoins. Don't buy any cryptocurrency.
  - rvz 4y ago
    A pipe dream and a bit too late to think about a complete ban to make this even a reality, otherwise the regulators would have already banned all of it entirely a long time ago 100% and completely. Now the SEC and other regulators continues to use the chain to trace up many insider trades and charge other projects for violating regulations. [0] Like it or not as long as there is no complete and 100% blanket ban on the entire cryptocurrency industry, they will always be buyers / sellers in this market with the certainty of tough regulations to come. [0] https://www.sec.gov/spotlight/cybersecurity-enforcement-actions https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...
    - dimgl 4y ago
      I'm not saying we should ban it, although I think it should be considered. I'm only suggesting that buying any kind of cryptocurrency is a bad idea.
- melenaboija 4y ago
  What makes a shitcoin to be a shitcoin?
  - cguess 4y ago
    If it's a cryptocurrency. (no, I'm not being facetious)
deleted 4y ago
[deleted]
Animats 4y ago
This is just insider trading prior to listing. Not insider trading prior to crashes, where the insiders know a crash is coming and exit before the suckers find out.
s1k3s 4y ago
> We estimate that insider trading occurs in 10-25% of cryptocurrency listings and as a lower bound, insiders earned $1.5 million in trading profits. Our findings identify cases that are yet to be prosecuted. 25% is still too low for how huge of a scam this thing is. I assume this only addresses insider trading, while the more common scheme is pump and dump?
- stjohnswarts 4y ago
  they did say it was a floor value
codetrotter 4y ago
The paper seems to be missing some figures and tables. It has placeholder text in it like "[Insert Figure 1 Here]" and "[Insert Table 2 Here]". Is this a draft?
- _delirium 4y ago
  You can find the figures at the end of the paper. It's a somewhat common style in the social sciences and humanities to format a manuscript like this. Figures either in separate files or at the end, with "insert figure here" annotations inline in the text. If the paper's accepted, then journal production staff would use those annotations to put the figures in approximately the desired place in the typeset version, using whatever layout software the journal uses. (In comp. sci., typically the author does this kind of figure placement themselves in LaTeX, so most drafts shared on HN don't have that style.)
  - codetrotter 4y ago
    Thank you, I am not used to this style so I found it confusing. Indeed, the figures and tables are as you said, at the end of the document.
stevebmark 4y ago
Don't forget that 90% of crypto trading is wash trading https://www.sciencedirect.com/science/article/abs/pii/S1544612321000635 https://www.sciencedirect.com/science/article/abs/pii/S15446... I love seeing financial minded folks talk about how the price of cryptocurrencies will go up and that they're good investments. They're gambling entirely on the fraud working, and most of them don't know it's fraud all the way down.
- selectodude 4y ago
  The only financial minded folks that are involved with crypto are the ones that are selling the buckets and pickaxes. The expense ratios on these BTC funds are immense.
- upupandup 4y ago
  I just don't understand A) how Coinbase got past YC vetting process B) continue to engage in serious violation of US security and trading laws C) a large portion of HN seems to downvote, flag, critical comments towards Brian Armstrong and coinbase
  - trollied 4y ago
    You might be interested in the Lex Fridman podcast with Brian Armstrong as a guest. https://lexfridman.com/brian-armstrong/ https://lexfridman.com/brian-armstrong/ I couldn't stop laughing when he said older banking systems run on "cobalt".
    - upupandup 4y ago
      its amazing how low the bar is for some people to be entrusted with billions. while for the rest of us the bar is so much higher and trusted with far less. our world is run not based on merit, ideas, gumption but a closed group of people brought together by common skin color, religion, class. I don't think Brian Armstrong would've gone very far with YC if he was black or asian
      - 4y ago
wikitopian 4y ago
Cocaine is great stuff, with a lot of medical uses, safe enough to include in popular soft drinks. But when you introduce a delivery system that short circuits your brain's reward circuitry, it's incredibly dangerous and destructive. Ponzi tokenomics are the crack rocks of blockchain technology, which is itself really nifty. The only thing that can and will stop the tokenomics craze is a popular backslash, which is building. And as with cocaine, blockchain will be forever slimed by association with this ponzi scheme fad and its devastating impact on millions and millions of families and fortunes. Only privacy coins which deliver on the original cypherpunk goals of blockchain will survive. And smart contracts won't find any general utility unless and until one arrives that offers reliable homomorphically encrypted private smart contract resolution.
- tromp 4y ago
  > privacy coins which deliver on the original cypherpunk goals of blockchain They don't deliver on one aspect, which is full auditability. I think all existing privacy chains are completely broken by knowledge of the discrete log of one particular curve point.
  - tepitoperrito 4y ago
    I'm not sure I fully understand how XMR guarantees fungibility of its token, but I think a big part of it is the construction of ring signatures to prove transactions are zero sum, with a pool of participating signers that all have statistically valid plausible deniability. Start here maybe https://web.getmonero.org/resources/moneropedia/clsag.html https://web.getmonero.org/resources/moneropedia/clsag.html?
    - tromp 4y ago
      I fully understand how privacy coins like XMT audit their supply. They assume that Pedersen commitments r*G+v*H can only be openend in one way. Which is false if the discrete log of H w.r.t. G is known. I said "I think" because there might by privacy coins not based on Pedersen commitments that I'm just not aware of.
rvz 4y ago
I assume that whoever is commenting here has read the whole paper rather than reading the headline and screaming in the comments section. It seems like the paper is assuming that nothing is happening and the SEC is also doing nothing to enforce it. Quite the contrary is happening in reality. The SEC seems to be still enforcing and investigating many projects this for some time [0], which tells us that crypto will most definitely be regulated rather than a total full scale and complete ban which opponents have been screaming about are have been dreaming for years. Due to the transparency and traceability of the majority of blockchains, it makes it possible to trace up all of this activity easily. Thus, is it not a surprise to see regulators banning blockchain privacy tools / coins off of exchanges and allowing the others or a compliant few. This is why they won't be a. complete ban and I would expect stricter regulations for the exchanges to reduce these problems. But as always, anything critical of cryptocurrencies or crypto projects in general here is quickly raced to the top of HN, despite regulators still actively investigating the mentioned projects and many others from time to time. [1] [0] https://www.sec.gov/spotlight/cybersecurity-enforcement-actions https://www.sec.gov/spotlight/cybersecurity-enforcement-acti... [1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1...
deleted 4y ago
[deleted]

99 points by IfOnlyYouKnew 4y ago

edgyquant 4y ago
Please elaborate on why that is
- prvit 4y ago
  Insider trading results in more accurate pricing.
  - last_responder 4y ago
    How does that work? Just saying something does not make it true.
    - prvit 4y ago
      Price discovery is a major function of markets, insider trading adds more information and benefits all parties by allowing for more accurate pricing of whatever is being traded.
      - toomuchtodo 4y ago
        US regulators are targeting fairness vs most efficient markets and price discovery.
        prvit 4y ago
        Indeed, but their definition of “fairness” is rather dishonest. This doesn’t benefit 99% of market participants. US regulators would rather specialist companies with the fastest algorithms and connections to process corporate announcements reap all the benefits.
      - renewiltord 4y ago
        Yeah, but that's not the only function. Which is why US exchanges have the notion of the Intermarket Sweep Order, etc.
        prvit 4y ago
        ISOs directly aid price discovery, no?
        renewiltord 4y ago
        Don't they impede price discovery by increasing the cost to move the price?
        prvit 4y ago
        If you focus only on price discovery happening in a specific market center, sure. However, because it’s 2022 and we have the internet and all I’m not sure it really makes sense to focus on specific market centers instead of the market as a whole. Of course HFT makes this far more complicated so it’s difficult to come up with a clear answer in either direction. The Clean sweep study (https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff2975/chakravarty2012.pdf?download=true https://zero.sci-hub.ru/5176/a262ebfad2436662b8fb5d7362ff297...) seems to suggest that ISOs have a greater impact on prices and add more information to markets than “regular” orders.
        renewiltord 4y ago
        Interesting. Thank you.
      - ajsharp 4y ago
        Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not real buy-side demand pricing information because the insider (typically) intends to sell as soon as the price pops, once more market participants have been pulled into the trade because it's going up -- key knowledge the insider knew the market did not. Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule.
        prvit 4y ago
        > Insider trading is a distortion of price discovery, because the insider possesses knowledge the rest of the market does not. That's why it's illegal. Insider trading is not illegal because insiders possess knowledge the rest of the market does not. Insider trading is illegal because it creates a false perception of unfairness among less sophisticated market participants. (There are other decent reasons too, Matt Levine has written about this extensively too. Yours isn’t one of them) > Markets as a price discovery mechanism relies upon all participants having access to the same information. Insider trading clearly breaks that fundamental rule. This only makes sense in a context where all parties have access to equal resources, but that’s not true. A hedge fund paying visa for transaction flow, or flying spy planes above a factory to track production will have more information than other participants.
        ajsharp 4y ago
        You're so far down the contrarian rabbit hole on this take, you're arguing the nuances of why, precisely, insider trading is illegal. It doesn't really matter why, it is, and for good reasons (agree with or don't, whatever). This ain't the hill.
        prvit 4y ago
        It’s not a “contrarian rabbit hole”. Whether or not insider trading should be illegal is a hotly contested topic among economists. >It doesn't really matter why, it is, and for good reasons Would you like to share the good reasons why it doesn’t matter?
      - notahacker 4y ago
        Insider trading can lead to more accurate pricing at a particular time by releasing information earlier than it otherwise would have been released (albeit selectively in a way designed to maximise harm to people on the other side of the trade the insiders usually have some sort of fiduciary duty to). It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. Suffice to say the dominant trend in crypto markets is not rapid convergence on a relatively stable price...
        prvit 4y ago
        > (albeit selectively in a way designed to maximise harm to people the insiders usually have some sort of fiduciary duty to). That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. > It also creates incentives for insiders to act perversely to profit from asymmetric information, including acting with the intent of creating less accurate pricing at a particular time in order to create trading opportunities for insiders. In the US that’s just called “wire fraud” and not “insider trading”.
        notahacker 4y ago
        > That doesn’t make any sense, prices go in both directions. If price goes up, there’s no harm to people who the insiders may have some fiduciary duty to. Of course there is. When prices go up, insiders profit at the expense of shareholders who sell to them. In the absence of insider traders, non-insider shareholders collectively achieve better returns; ergo they are harmed by the presence of insider trading on positive or negative information. (The only time it wouldn't be the case is if the prices move in the opposite direction to the one the insiders are expecting due to some other unanticipated development which is far more significant than their information advantage) > In the US that’s just called “wire fraud” and not “insider trading”. Much easier to prove the insider trading in the run up to a profit warning than prove an entity was intentionally mismanaged to create that opportunity and its earlier predictions of success were fraudulent and not just incorrect.
      - stjohnswarts 4y ago
        If you want insider trading then take the company private and do all the trading you want. Public companies and investors should be able to count on insider trading being illegal. The punishments need to much more severe and extremely hard to get out of in court.
  - arcticbull 4y ago
    Pricing is equally accurate, the difference is latency. That reduction in latency though comes at a high cost.
    - prvit 4y ago
      It’s not equally accurate. Markets are supposed to price in the future. “Latency” just means that the future isn’t priced in, which results in less accurate pricing.
      - arcticbull 4y ago
        The price reflects the consensus knowledge of participants. Insiders cannot participate. Therefore, the price is accurate. Addition of new knowledge will happen in time, therefore I maintain this is a latency issue not an accuracy issue. The markets don't price in the future, they guess it.
        prvit 4y ago
        Latency is inaccuracy, just on a different axis of the graph. Insider trading adds to consensus knowledge.
      - BbzzbB 4y ago
        Saying insider trading of material non-public information is beneficial to free markets because it allows for a handful of connected individuals to front-run the market on non-public news is certainly a take. A really weird one, but a take nonetheless.
        prvit 4y ago
        Why do you think it’s better that some hedge fund with specialist algorithms and infrastructure front-runs the market instead? It’s a handful of connected individuals in either case.
        BbzzbB 4y ago
vkou 4y ago
For price discovery? Maybe. But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? And it's definitely not beneficial when the insider has the active ability to influence the price of the asset. If an executive could make money by shorting his firm's stock, the optimal strategy for every executive would be to sabotage their firm, while shorting its stock. The latter two reasons are why it's illegal, by the way. It undermines confidence in markets, and it creates perverse, value-destroying incentives.
- prvit 4y ago
  > But it's certainly not for the other participants who are getting rolled over by insiders. Why play a rigged game? This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. > The latter two reasons are why it's illegal, by the way. It undermines confidence in markets, and it creates perverse, value-destroying incentives. This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice?
  - bee_rider 4y ago
    We should just make it illegal to do bad things, then we won't have to write all these really specific laws.
    - prvit 4y ago
      In this context, the bad thing (sabotaging your publicly traded company) is illegal regardless of the not-bad thing (insider trading).
  - vkou 4y ago
    > This only makes sense if you think of markets as gambling. Otherwise, other participants are always getting rolled by parties with better research, or perhaps just a faster internet connection. Or if you think of markets as a way to encourage investment into the economy. Why should I invest if insiders are going to be scooping up a lion's share of the windfalls? Anything that reduces the ROI on my investments creates an incentive for me to not invest. > This doesn’t stand up to the most basic scrutiny. Sabotaging your publicly traded company is illegal whether or not you also engage in insider trading, what benefit is there to be had from criminalising the same thing twice? 1. Without these incentives, you have far fewer reasons to behave unethically and illegally. 2. You usually can't tell the difference between accidental incompetence and malicious sabotage. Being able to do sabotage under the guise of incompetence, while having a profit motive is a colossal conflict of interest, and any system that encourages it is going to produce a lot of poor outcomes. 3. When the executive doesn't benefit from either incompetence, or sabotage, and their rewards are based on good performance (stocks go up), their incentives are aligned to chase good performance. Better price discovery is a good thing, but in this case, the juice is not worth the squeeze.
tppiotrowski 4y ago
Apples to oranges. Price discovery is better but the insiders reap 99% of the $$$.
- prvit 4y ago
  So? Nobody is deprived of anything. You’d prefer for whatever company has the fastest algorithms to process corporate announcements to reap 99% of the $$$? How is that any better?
  - tppiotrowski 4y ago
    I sell you a lemon car. You benefit because you have a car and I benefit because you paid me money. Which one of us got the better deal? Edit: algorithmic option is available to anyone but insider trading rewards a select few "insiders". No meritocracy.
    - prvit 4y ago
      > Edit: algorithmic option is available to anyone but insider trading rewards a select few "insiders". No meritocracy. So what? How does artificially helping algorithmic traders help society at large, or even just market participants at large? This is just creating a worthless industry that could be entirely replaced by insider trading.
      - jabits 4y ago
        Man, you should take a finance class…
        prvit 4y ago
        I have an Economics with Accounting degree from LSE actually
        skinnymuch 4y ago
alexb_ 4y ago
I don't think you understand how asymmetric information in markets works. I would suggest reading "The Market for Lemons".
- prvit 4y ago
  Information asymmetry is a fundamental, unavoidable feature of the markets. It’s not illegal for me to pay Visa and Mastercard for an exclusive deal to access transaction flow and trade on the basis of that information. I will in fact be trading based on material nonpublic information, but not in the sense the law forbids.
  - selectodude 4y ago
    Uh, you sure? >The Securities and Exchange Commission announced today that it charged Bonan Huang and Nan Huang (the "Defendants") with engaging in illegal insider trading on the basis of material, non-public information about the sales of predominantly consumer retail corporations. >In its complaint filed in the federal court in the Eastern District of Pennsylvania on January 21, 2015, the SEC alleges that the Defendants worked for a large credit card issuer as data analysts tasked with investigating fraudulent credit card activity. While employed there, Defendants searched their employer's nonpublic database that recorded the credit card activity for millions of customers at numerous, predominantly consumer retail corporations. The Defendants conducted hundreds, if not thousands, of keyword searches of this database. These searches, which were not done in furtherance of their employment duties, allowed the Defendants to view and analyze aggregated sales data for the companies they searched. The complaint further alleges that, in a breach of their duty to their employer, the Defendants made profitable securities transactions on the basis of this material, non-public information in advance of the public release of quarterly sales announcements by these companies. https://www.sec.gov/litigation/litreleases/2015/lr23179.htm https://www.sec.gov/litigation/litreleases/2015/lr23179.htm
    - prvit 4y ago
      Yes, I’m sure. What you pasted is perfectly in line with what I said. Those guys did a bad thing because they deprived their employer of the opportunity to profit from this data.
stjohnswarts 4y ago
No it's not. It allows easy market manipulation. How can the market succeed with things like pump and dump, insider's have extra knowledge and such? There's a good reason why it's illegal and punishable. I only wish the people caught did about 5X as much time including Congress members.
- prvit 4y ago
  Market manipulation is illegal regardless of whether or not insider trading is illegal.

For me the word cryptocurrency and scam are synonyms. And in my mind people defending it on the internet are inside the pyramid scheme and trying to justify their investment. Just one of the many cancers affecting our current society.

gjs278 4y ago
senttoschool 4y ago
People here who are defending it benefit from the scams. Instead of working on projects that prevent scam using blockchains, they participate in it. You can work in crypto as long as you have no morals.
- tromp 4y ago
  As author of the Cuckoo Cycle Proof-of-Work puzzle [1] and core developer of a blockchain that offers zero financial rewards for its creators and early adopters, I strongly take issue with your characterization. I agree that most projects are cash grabs, but that's no excuse for insulting all developers without exception. [1] https://github.com/tromp/cuckoo https://github.com/tromp/cuckoo
  - arcticbull 4y ago
    So an intentionally-slow multi-player Excel game that wastes power without rewarding people financially.
    - ziddoap 4y ago
      I can pick just about any project that's appeared here or elsewhere and be just as uncharitable and miserable about it if I wanted to. What's your point? What does this add to the conversation?
  - halfmatthalfcat 4y ago

arberx 4y ago

Shocking.

TakeBlaster16 4y ago

They looked at Coinbase listing announcements from September 25, 2018 to May 1, 2022, and tracked four wallets that bought listings ahead of the announcements and earned an estimated profit of 1003 ETH ($1.5 million). Of course, if you don't want to give those people your money, there is a simple solution: Don't buy shitcoins.

dimgl 4y ago
> Of course, if you don't want to give those people your money, there is a simple solution: Don't buy shitcoins. Don't buy any cryptocurrency.
- rvz 4y ago
  A pipe dream and a bit too late to think about a complete ban to make this even a reality, otherwise the regulators would have already banned all of it entirely a long time ago 100% and completely. Now the SEC and other regulators continues to use the chain to trace up many insider trades and charge other projects for violating regulations. [0] Like it or not as long as there is no complete and 100% blanket ban on the entire cryptocurrency industry, they will always be buyers / sellers in this market with the certainty of tough regulations to come. [0] https://www.sec.gov/spotlight/cybersecurity-enforcement-actions https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...
  - dimgl 4y ago
    I'm not saying we should ban it, although I think it should be considered. I'm only suggesting that buying any kind of cryptocurrency is a bad idea.
melenaboija 4y ago
What makes a shitcoin to be a shitcoin?
- cguess 4y ago
  If it's a cryptocurrency. (no, I'm not being facetious)

deleted 4y ago

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Animats 4y ago

This is just insider trading prior to listing. Not insider trading prior to crashes, where the insiders know a crash is coming and exit before the suckers find out.

s1k3s 4y ago

> We estimate that insider trading occurs in 10-25% of cryptocurrency listings and as a lower bound, insiders earned $1.5 million in trading profits. Our findings identify cases that are yet to be prosecuted. 25% is still too low for how huge of a scam this thing is. I assume this only addresses insider trading, while the more common scheme is pump and dump?

stjohnswarts 4y ago
they did say it was a floor value

codetrotter 4y ago

The paper seems to be missing some figures and tables. It has placeholder text in it like "[Insert Figure 1 Here]" and "[Insert Table 2 Here]". Is this a draft?

_delirium 4y ago
You can find the figures at the end of the paper. It's a somewhat common style in the social sciences and humanities to format a manuscript like this. Figures either in separate files or at the end, with "insert figure here" annotations inline in the text. If the paper's accepted, then journal production staff would use those annotations to put the figures in approximately the desired place in the typeset version, using whatever layout software the journal uses. (In comp. sci., typically the author does this kind of figure placement themselves in LaTeX, so most drafts shared on HN don't have that style.)
- codetrotter 4y ago
  Thank you, I am not used to this style so I found it confusing. Indeed, the figures and tables are as you said, at the end of the document.

stevebmark 4y ago

Don't forget that 90% of crypto trading is wash trading https://www.sciencedirect.com/science/article/abs/pii/S1544612321000635 https://www.sciencedirect.com/science/article/abs/pii/S15446... I love seeing financial minded folks talk about how the price of cryptocurrencies will go up and that they're good investments. They're gambling entirely on the fraud working, and most of them don't know it's fraud all the way down.

selectodude 4y ago
The only financial minded folks that are involved with crypto are the ones that are selling the buckets and pickaxes. The expense ratios on these BTC funds are immense.
upupandup 4y ago
I just don't understand A) how Coinbase got past YC vetting process B) continue to engage in serious violation of US security and trading laws C) a large portion of HN seems to downvote, flag, critical comments towards Brian Armstrong and coinbase
- trollied 4y ago
  You might be interested in the Lex Fridman podcast with Brian Armstrong as a guest. https://lexfridman.com/brian-armstrong/ https://lexfridman.com/brian-armstrong/ I couldn't stop laughing when he said older banking systems run on "cobalt".
  - upupandup 4y ago
    its amazing how low the bar is for some people to be entrusted with billions. while for the rest of us the bar is so much higher and trusted with far less. our world is run not based on merit, ideas, gumption but a closed group of people brought together by common skin color, religion, class. I don't think Brian Armstrong would've gone very far with YC if he was black or asian
    - 4y ago

wikitopian 4y ago

Cocaine is great stuff, with a lot of medical uses, safe enough to include in popular soft drinks. But when you introduce a delivery system that short circuits your brain's reward circuitry, it's incredibly dangerous and destructive. Ponzi tokenomics are the crack rocks of blockchain technology, which is itself really nifty. The only thing that can and will stop the tokenomics craze is a popular backslash, which is building. And as with cocaine, blockchain will be forever slimed by association with this ponzi scheme fad and its devastating impact on millions and millions of families and fortunes. Only privacy coins which deliver on the original cypherpunk goals of blockchain will survive. And smart contracts won't find any general utility unless and until one arrives that offers reliable homomorphically encrypted private smart contract resolution.

tromp 4y ago
> privacy coins which deliver on the original cypherpunk goals of blockchain They don't deliver on one aspect, which is full auditability. I think all existing privacy chains are completely broken by knowledge of the discrete log of one particular curve point.
- tepitoperrito 4y ago
  I'm not sure I fully understand how XMR guarantees fungibility of its token, but I think a big part of it is the construction of ring signatures to prove transactions are zero sum, with a pool of participating signers that all have statistically valid plausible deniability. Start here maybe https://web.getmonero.org/resources/moneropedia/clsag.html https://web.getmonero.org/resources/moneropedia/clsag.html?
  - tromp 4y ago
    I fully understand how privacy coins like XMT audit their supply. They assume that Pedersen commitments r*G+v*H can only be openend in one way. Which is false if the discrete log of H w.r.t. G is known. I said "I think" because there might by privacy coins not based on Pedersen commitments that I'm just not aware of.

rvz 4y ago

I assume that whoever is commenting here has read the whole paper rather than reading the headline and screaming in the comments section. It seems like the paper is assuming that nothing is happening and the SEC is also doing nothing to enforce it. Quite the contrary is happening in reality. The SEC seems to be still enforcing and investigating many projects this for some time [0], which tells us that crypto will most definitely be regulated rather than a total full scale and complete ban which opponents have been screaming about are have been dreaming for years. Due to the transparency and traceability of the majority of blockchains, it makes it possible to trace up all of this activity easily. Thus, is it not a surprise to see regulators banning blockchain privacy tools / coins off of exchanges and allowing the others or a compliant few. This is why they won't be a. complete ban and I would expect stricter regulations for the exchanges to reduce these problems. But as always, anything critical of cryptocurrencies or crypto projects in general here is quickly raced to the top of HN, despite regulators still actively investigating the mentioned projects and many others from time to time. [1] [0] https://www.sec.gov/spotlight/cybersecurity-enforcement-actions https://www.sec.gov/spotlight/cybersecurity-enforcement-acti... [1] https://www.sec.gov/litigation/complaints/2022/comp-pr2022-127.pdf https://www.sec.gov/litigation/complaints/2022/comp-pr2022-1...

deleted 4y ago

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