Opinion by: Nic Puckrin, founder of CoinBureau
The most significant liquidation event ever recorded in the crypto market, totaling over $19 billion in long positions, occurred after US President Donald Trump announced tariffs against China on October 10. This incident revealed a troubling aspect of the crypto landscape: its susceptibility to insider trading.
Onchain data indicates that a considerable short position was established on Hyperliquid just thirty minutes before the announcement. When the market collapsed, this trader profited by $160 million, raising suspicions of market manipulation — with some speculating that the trader had connections to the presidential family.
While this case is just one of many potential insider trading incidents in the crypto world, it highlights a persistent issue within the industry. The token launch models merit scrutiny, as they often provide venture capital firms with allocations that can be sold upon listing, disadvantaging retail investors. Despite advancements in the industry, crypto remains a largely unregulated territory — akin to the “Wild West” — prone to manipulation.
This ongoing dilemma extends beyond the realm of crypto, showing up throughout the history of financial markets. Regulatory efforts have consistently failed to remedy the situation over the decades. It’s not an issue unique to blockchain technology; it stems from human greed.
The transparency offered by blockchain technology has exposed unsavory practices in the market, urging regulators to take substantial steps towards reform.
Rules that favor the favored
Financial markets have a long history of unpunished insider trading and market manipulation. A notable example is the global financial crisis, where key players evaded consequences for their actions despite a wealth of evidence. This includes executives from Lehman Brothers, who liquidated their stocks while the firm was failing — all due to the inability of prosecutors to establish intent under current laws.
Related: How an anonymous trader made $192M shorting one of the biggest crypto crashes
Following these events, the SEC reportedly initiated over 50 investigations into the derivatives markets, including insider trading cases related to credit default swaps and their influence on the Greek government bond crisis between 2009 and 2012. Yet, none resulted in convictions, primarily due to the lack of coverage for debt derivatives, a gap that still exists in US law today.
Globally, reforms to insider trading regulations have been minimal. Nearly a century after their inception through the US Securities Exchange Act of 1934, most changes have hindered progress rather than helped. In the US, Rule 10b5-1, introduced in 2000, created loopholes in insider trading laws rather than closing them, and any updates have failed to adapt to today’s more complex market environment.
A prominent case illustrating these issues is the 2016 SEC v. Panuwat trial, which pushed the limits of insider trading law, taking eight years to reach a conviction. Matthew Panuwat, a senior executive at Medivation — later acquired by Pfizer — bought call options for competitor Incyte Corp after learning of the acquisition, resulting in a personal gain exceeding $100,000.
The SEC is ignoring insider trading
Although Panuwat was eventually found guilty, this phenomenon of “shadow trading” remains an emerging area of enforcement for the SEC and is not yet codified in law. This gap highlights the inadequacies of existing regulations in a market that has undergone significant transformation over the last half-century, necessitating an overhaul.
It is imperative to formally broaden the legal framework to cover a wider array of investment instruments, including derivatives and digital assets, while also updating the definition of insider information to include governmental insights, policy briefings, and other avenues. Strengthening pre-disclosure and cooling-off periods for public officials and aides should also become a priority, similar to current 10b5-1 reforms.
Moreover, the pace of enforcement must significantly accelerate. An eight-year wait for a conviction is far too long, especially in a market where billions can disappear within moments.
Regulators need to adopt a strong stance against insider trading, employing modern tools to combat fraud effectively.
Indeed, the crypto market is no exception. It is crucial for authorities to scrutinize token launches, exchange listings, and the transactions driving the digital asset frenzy. Legitimate participants in the industry would welcome this oversight.
However, treating this issue as solely a crypto-centric problem would be a grave misstep. Until legal frameworks are updated and loopholes are closed, insiders will continue to exploit them, resulting in ongoing erosion of trust in the system.
Only when transgressors face real consequences for their actions will meaningful change occur, both in traditional and digital asset markets.
Opinion by: Nic Puckrin, founder of CoinBureau.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
