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Has Coinbase Done Enough to Cover The Bitcoin Cash Scandal?

Cryptocurrency Exchanges–On Tuesday, popular U.S. based exchange Coinbase released a statement to Fortune exonerating the company from allegations of insider trading and foul play in relation to last year’s Bitcoin Cash listing.

For those unaware of the story, Coinbase has been embroiled in a multi-lawsuit accusation of insider trading, or foul play instigated by Coinbase employees, in the days leading up to the addition of Bitcoin Cash on the exchange.

That timeline for the controversy surrounding BCH extends back into the Summer of last year. Following a stir over the looming hard fork of Bitcoin (BTC) into the new currency Bitcoin Cash (BCH) that was to take place in August, Coinbase released a statement in July 2017 that the company did not intend to support BCH, which would require investors to redeem their forked coins off the exchange. In August, the company changed its position to a partial support of Bitcoin Cash, thereby allowing users holding their BTC on the exchange during the time of the fork to receive their equivalent Bitcoin Cash. While Coinbase did not set a hard date for when the BCH drop to the exchange would occur, it did say that Bitcoin Cash support would be available before January 1, 2018.

However, on December 20th, weeks before the proposed deadline, the price of BCH pumped to nearly double its initial price, supposedly off of increased demand from South Korean investors. Whether in a bid to catch the rising price for investors or capitalize on the trade fees being missed, Coinbase made the sudden decision to list Bitcoin Cash on GDAX (the company’s trading platform, renamed to Coinbase Pro), without prior acknowledgement. The price of BCH on Coinbase subsequently underwent some of the highest volatility ever experienced in cryptocurrency, pumping to a new all time high before crashing again in a number of hours. Whether from increased customer demand or lack of resources, the price movement temporarily brought a pause to GDAX and Coinbase trading, which took hours to resume.

Immediately following the listing of BCH on Coinbase, in conjunction with the pumping price in the lead up, accusations of insider trading and foul play spread across the investment community, with multiple lawsuits being formed in the weeks after. Coinbase made a prompt response to the allegations, stating that it would conduct a thorough, internal review to investigate the possibility of insider trading.

Just this week, Coinbase released the results of the internal review, telling Fortune that the company had found no evidence of foul play,

“We would not hesitate to terminate an employee or contractor and/or take appropriate legal action if evidence showed our policies were violated. We can report that the voluntary, independent internal investigation has come to a close, and we have determined to take no disciplinary action.”

However, some have been left unsatisfied by Coinbase’s lack of explanation for the sudden price pump in BCH that coincided with the currency being listed on the exchange. Considering the company made a high profile announcement just weeks ago over the possible addition of five new currencies, it’s fair for investors and Coinbase customers to question whether a similar situation will occur.

As opposed to the unannounced, sudden listing of Bitcoin Cash, Coinbase has taken a more proactive approach to the new currencies under exploration. The company made an announcement detailing the coins it is considering for addition, without given explicit details to which currency(ies) will be accepted. Coinbase also reports making the announcement internally at the same time as the official announcement, thereby preventing the possibility of employees to invest ahead of the market reaction. Almost on-cue, Stellar Lumens XLM, the most popular choice for addition to Coinbase, saw its price climb to nearly double in the weeks following the connection to the exchange, with significant price movement accompanying the other four currencies.

While it is admirable that Coinbase has made a new policy of announcing the decision internally in conjunction with the press release, in addition to listing multiple currencies as to avoid a single pump, it still does not give investors assurance that a similar price run will occur ahead of the official coin listing.  Given the inevitability of price pumps associated with currencies going on the exchange, it gives the impression that the market is better served by not attempting to police Coinbase, but simply moving past the importance of exchanges for price growth and adoption. Savvy investors are hoping to turn a profit on the exposure of new coins to new customers, but at some point, exchange-driven growth will reach a point of saturation. As we saw with the price of XRP throughout the first three months of the year, being tied up in a potential exchange listing can have serious inverse effects on a coin’s perceived and market value.

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Bitcoin Cash: Internal Investigation Clears Coinbase of Insider Trading Allegations

Coinbase has concluded that there was wrongdoing on its part concerning the listing of Bitcoin Cash on its platform in December 2017. This conclusion was based on an investigation into the circumstances that surrounded the listing of the popular Bitcoin fork on the platform. Meanwhile, the matter is still the subject of a class action lawsuit filed against the company by its customers.

Internal Investigation Reveals Zero Evidence of Insider Trading

In late December 2017, Coinbase surprised the cryptocurrency community by suddenly making Bitcoin Cash available for trading on its platform. Before the announcement, the price of the coin skyrocketed leading many to accuse Coinbase of insider trading. In response, the platform launched an internal investigation to ascertain if there was any wrongdoing on its part.

Apart from the investigation, Coinbase CEO, Brian Armstrong, also released a stern blog post where he warned company employees of the consequences of running afoul of the firm’s trading policies. He also said the company wouldn’t hesitate to fire and sue any employee found guilty of insider trading.

Courtesy: Entrepreneur.wiki

According to Fortune, the Coinbase internal investigation concluded its inquiry last week. Two prominent law firms spearheaded the investigation. Commenting on the conclusion of the inquiry, the company said:

We would not hesitate to terminate an employee or contractor and/or take appropriate legal action if evidence showed our policies were violated. We can report that the voluntary, independent internal investigation has come to a close, and we have determined to take no disciplinary action.

An inside source at the company also revealed that a member of the platform’s legal team has already intimated Coinbase staff on the result of the investigation.

The Coinbase – Bitcoin Cash Saga

While the result of the internal inquiry is good news for Coinbase, the matter is far from over. There is still a pending class action lawsuit against the company, filed by some of its customers. According to Lynda Grant, lead counsel for the plaintiffs in the suit, the case is still ongoing and is currently in the procedural stages.

Grant also believes that the Commodity Futures Trading Commission (CFTC) is investigation the Coinbase – Bitcoin Cash Saga. The CFTC is yet to issue any corroborating statement.

Do you think Coinbase is guilty of insider trading concerning the Bitcoin Cash Listing? Let us know your thoughts in the comment section below.

Image courtesy of Ethereum World News archives.

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