Is this insider trading according to the law? Nonpublic information isn't being used to trade public stocks; it's being used to trade assets that don't appear to be regulated securities.
To add to what you're saying, forex explicitly does not have insider trading rules. The problem is it's treated as a general asset.
It feels like there should already be rules in place to handle if, for example, an Amazon exec went and bought property around an area prior to Amazon announcing their new HQ.
Perhaps, though insider trading rules are pretty hard to enforce inside relatively confined and regulated realms.
One solution is to go a step up the meta. Ban trading for certain groups or classes, like banning parliamentarians and government officials. ..but spouses, kids, friends and cousins make for a pretty substantial loophole.
That said, not regulating against insider trading bleeds very quickly into market manipulation and corruption.
Not sure what the ansers are. This is a very dirty part of the game game. Crypto brings in a new set of players, and it takes years before they'll learn to do this in a way that maintains a stable plausible legitimacy.
We absolutely cannot have second tier people insider trading and rigging markets. It's antistabalizing.
I feel like this is less someone getting an unfair benefit and more just eager people experiencing at least part of what the regulatory framework is meant to protect them from— which is being taken to the cleaners on the basis of rumours that don't end up panning out.
The question is, when is a coincident of making profit too big to actually be true. And I feel like this could be something that AI can be used for in the future. No human can overlook all the possibilities one could profit off insider information.
no, its not. spot assets have no insider trading prohibition or sanction for trading in advance.
equities (and some slight case law in the bond markets) have insider trading prohibitions attached, and futures have some newer anti fraud statutes tacked on to them by a different regulatory agency.
It is perfectly legal to trade non-securites based on insider information, for example real estate. Are these securities though? Wait, I think I heard that question before.
Point on insider trading law that the inimitable Matt Levine writes about frequently:
The law is not about fairness, but about theft (of inside information). In particular, it is illegal to misappropriate someone else's information you come across to do insider trading for your own benefit. But it is not illegal for someone to use their own information to trade on.
In this case, Coinbase published a list of coins that it might list. As I understand it, it would be illegal if some employee of Coinbase bought these coins prior to the release for his own account (thereby misappropriating the information). But if Coinbase bought them for their account, and then released the list, and then made money on the subsequent rise, that would be perfectly legal.
before crypto there was a market phenomenon that I personally have no knowledge of but an acquaintance at a big bank which facilitated a lot of FX trading was very happy at one point that he was sent to Japan, where retail FX trading had become a huge fad, like crypto now. He was a prop trader for the bank and made a lot of his money going against retail traders. Presumably it was exploiting information asymmetries, partly, but probably also just simply harvesting fees and spreads.
They are regulated securities, just the SEC doesn't do anything about them. BTC is the only cryptocurrency where SEC has clearly stated that it's not a security. ETH is grey area. A lot of the altcoins / tokens are clearly securities.
No, probably not. Nevermind that our own Congress regularly pulls this on us in the stock and real estate markets, insider trading happens all the time in various forms. The only difference here is that you can scan the chain for obvious forms of it.
Because of this, there aren't laws for it as far as I know, only internal ethics docs. Might be more requirements for public companies, but still not the same as insider trading.
I think Coinbase does fractional banking, I don't have any proof so not completely sure but you can judge yourself, this happened a few months ago:
- nuCypher just randomly started going up on Binance
- the price was still low on coinbase
- the normal thing to do was to withdraw from coinbase and sell on binance
"Oops withdrawal of nucypher is temporarily locked", it stayed locked for 8 hours, all the crypto subs on reddit were screaming about it etc... a normal shitshow.
No explanation whatsoever was given, the only one that makes sense to me is that they do fractional reserve like everyone else, since there is no way everyone is going to withdraw at the same time right? in the 2021 bullrun coinbase received a lot of non technical people who are ok with keeping their funds on their website, so I guess they figured out they could just imitate the banks and start lending the funds people keep there and have you trade imaginary tokens you can't withdraw if you see a better opportunity.
Jan 3rd is Proof-of-Reserves day, and all of the larger actors have ignored it for far too long. I believe Kraken has committed to it now, which is great.
Also: obligatory "not your keys, not your coins" and "don't keep your coins on an exchange".
That's just evil, but also, likely not terribly enforceable.
It would just bring crypto back to its roots as a government resistant alt currency. Being uncontrollable was the whole point. Particularly regarding Bitcoin and Monero.
I think it could slow adoption, but I've been primarily buying offline. Soon I'll have a lightning node too--improving my BTC privacy.
Defi exchanges are the next major advancement to government resistance as well. This space would rapidly mature under government regulating away self custody.
> rich private currency economy will grow unmolested by tax collectors
Honestly I wouldn't mind that either. Governments in general are absurdly corrupt and taxes finance that corruption the same way drug users finance cartels.
Yes, and the proposed restrictions only apply to transactions which directly involve an exchange. You can still have an anonymous self-hosted wallet, you just can't withdraw to it directly; you have to move the funds to a verified wallet address first.
It's hardly "unworkable". There are already systems in place for verifying your own wallets; you just need to sign a message using your key to verify that the wallet is actually yours.
So far I haven't seen any proposed rules about what you can do with the crypto once it's in your wallet, so all this means is that you need to withdraw to your own wallet first before sending the funds anywhere you want.
The national ID link happens at the exchange, via the normal KYC process. You prove your identity to the exchange, and you prove that you have the private key for the wallet by signing a challenge message. That's it. The relevant proposed regulations can be found here[0] (linked from [1]):
> (29) This Regulation applies not only to transfers of crypto-assets where both the crypto-asset service provider of the originator and beneficiary are involved but also to transfers of crypto-assets to or from a distributed ledger address not linked to a crypto-asset service provider, so called “unhosted wallets”, as long as there is at least one crypto-asset service provider involved in the transfer of crypto-assets.
> (29a) In cases of a transfer of crypto-assets made from or to a distributed ledger address not linked to a crypto-asset service provider, the crypto-asset service provider will have to obtain information both on the originator and the beneficiary, usually from their customer. However, the crypto-asset service provider will have to verify the accuracy of only the information on their customer and not on the originator or beneficiary with the distributed ledger address not linked to a crypto-asset service provider.
So when a transfer is made to or from an external, non-hosted wallet the exchange is responsible for identifying the wallet's owner.
Also note this clause in the proposed text of the regulation (under Article 2 paragraph 4):
> This Regulation shall not apply to person-to-person transfer of crypto-assets as defined in Article 3(14) of this Regulation.
So transfers between two unhosted wallets are unaffected.
This regulation has been widely misreported, so don't believe everything you read, especially if it doesn't cite the actual text of the regulation.
Coinbase definitely doesn't keep all their funds in a hot wallet. They keep enough readily accessible to cover the projected volume of withdrawals; the rest can be kept offline. They even specifically offer a "vault" service for managed cold storage.
When you put in a sell order through the normal "retail" interface you're trading with Coinbase itself. Those coins can stay offline in cold storage, as they're just moving numbers around in their database, off-chain. Only withdrawals and periodic internal rebalancing operations (making up for an imbalance between buys & sells) strictly require online access to the keys, and those only affect a small part of the total.
They don't need hot wallets for exchange trading. That's just normal accounting, numbers in a centralized database. They could have zero reserves and it'd still work. Only when you withdraw cryptocurrency from the exchange and into your own wallet do they need to produce actual coins for the transaction.
Hmm. I would expect them to have layers of security, with one of those layers being funds in a cold wallet with serious access control around it. If I were asked to insure them, the premiums and coverage would hinge on security layers and mitigations in place to prevent loss. I don't think it's unreasonable to have funds in a cold wallet.
Coinbase regularly "goes down" or at least large amounts of users unable to login whenever there seems to be a "bank run" - which conveniently will help reduce the downward pressure on the price plummeting, so whatever billion dollar buffers or reserves waiting to buy during large selloffs they have - to also counter a total crash - would have pressure reduced on them as well; it might be a very short period of time that a user might need to be blocked out from selling in order to stop "hysteria" or panic selling.
Interestingly, trading for regular stocks on US exchanges is halted for many reasons including when the price moves too fast, a 10% move in 5 minutes automatically gives a 5 minute halt. https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes
Yeah, the conventional financial markets are rigged, despite (or because?) of layers of regulation and "oversight" - the Robinhood-GME incident and banks/individuals that contributed to the 2008 crash getting off scott-free should have been enough to convince most individuals of this.
2008 crash is a decent example of finance being rigged. Robinhood's handling of GameStop is not. They may be a pretty shit brokerage, but DTCC collateral requirements hit everybody, and they just didn't have enough money lying around to deal with that in the way a lot of customers would have wanted.
So you agree the DTCC doesn't know how to manage their collateral requirements? It's one of their primary reasons for existing. It seems like something they should've been able to foresee or handle, rather than force brokerages into PCO when they already lost control of the situation.
It's really akin to the LME trade halt fiasco, which then became even worse when they retroactively reversed trades. The point is, when they're about to lose money they'll change the rules of the game. If you don't recognize that then you're the sucker at the table.
They know full well how to handle their collateral requirements; that's exactly what they did! The idea that they "lost control" of the situation is pretty wild; how would they have exerted control over it? GME went nuclear in a day, and nobody a week before then would have told you it was going to happen the way it did. Should they require near 100% collateral from brokers on every trade, and everything that comes along with that? And no, them biting the bullet on trades that don't clear isn't a real solution. The ideal situation that would have mitigated it and kept them safe is same-day settlement cycles, but that's not a choice they alone get to make.
The LME situation and the DTCC/meme stock situation have very little in common, besides both of them being triggered by extreme price movement. It's much easier to argue that LME was rigging the game, but commodities are a different market that hit a little closer to home when things go bad. If the LME let short hedges get vaporized, the idea that they should have been left out to dry would be very unpopular in the fallout of that situation. Maybe they should have, but you're going to have a hard time convincing people not involved in finance of that.
Unless you are an institutional trader, the market isn't out to get you specifically. You aren't even shit on their shoe. You're shit three counties over, if that. They barely think about you. They barely even know you exist. You're background noise that most large players need to filter out to find out who is actually on the other end of the trade. Financial markets are rigged in the sense that big players will be bailed out and cut loose no matter what. They are not rigged in the sense that a retail investor can be on the losing end of a trade because they didn't understand what's actually happening.
This is absurd. If you make a bet that you're unable to honor which forces you to shut down the market, you've lost control. If they can't account for this then they can't account for the trades they're supposed to honor.
Yes, it's literally their job to account for situations like this. They failed. Pointing out how insane the situation was only points out how poorly they predicted what might happen with private information they still haven't shared publicly. If they can't account for the bets placed then we don't have functioning markets. They knew what the short interest was, they knew what the options chain was, they have data about trades the public can't even see. There were multiple traders pointing towards a potential short squeeze in GME going back well into 2020, so if they could see it why the fuck couldn't the DTCC?
Your stance is "their job was hard therefore it's not their fault." That's quite frankly batshit insane when we're talking about the stock market which is an enormous functioning part of our economy. Yeah man, I'm concerned they don't know what the fuck they're doing because they've already proven they don't. If they didn't care they wouldn't have changed the collateral requirements - you're contradicting reality with your argument.
You can have the last word, I'm not going to respond any further.
- A clearinghouse's job is to ensure that trades settle, which requires adjusting collateral, which is exactly what they did
- A clearinghouse does not honor a trade, the buyer and seller (via their brokerage) do; if there's an increased risk of the trade not being honored, the clearinghouse raises collateral requirements
- DTCC controlled the situation the best they could from their end by raising collateral requirements, which is basically all they can do
- A market can be functioning perfectly fine even if clearinghouse collateral is at 100%
- A clearinghouse doesn't definitionally know what the outstanding short interest is; short positions are on broker's books and it is the broker that reports that data to FINRA, not the clearinghouse
- A clearinghouse preemptively "dealing with" with all outstanding options positions (or any position, for that matter) that they (there is not just one clearinghouse) know about boils down to collecting 100% collateral
- The OCC clears options, the DTCC (by way of the NSCC) clears equity; the data that the DTCC has regarding options is presumably very limited
- A clearinghouse is not going to require 100% collateral because somebody on the internet believes there's going to be a short squeeze
- I don't exactly know what you think you think they "don't care" about, but if you're implying that a clearinghouse requiring high collateral to deal with brokers not being able to make good on a trade because of activity on that broker's books is somehow rigging the market, you've completely lost the plot
I think you misunderstand what a clearinghouse does.
We both think the other is an idiot. I'm going to trust my friends that are securities lawyers and professional traders over an internet stranger regurgitating commonly held misunderstandings on how the market works. Believe whatever you want.
I apologize for calling you an idiot - that was a bit much on my part. I still disagree and don't want to continue the conversation, but saying "you don't understand" is different from an accusation that you're incapable of understanding.
They absolutely do that. Binance itself imposed limits on cryptocurrency withdrawals not too long ago. If people leave their money in the exchange, they'll lend it out to borrowers which means they're generating inflation. They even have savings accounts and everything.
Exchanges are banks. They have the exact same problems, only with less regulation.
The above is not an indication of fractional reserve. Likely explanation: Customer funds are divided between hot/cold wallets where only a fraction is immediately available for withdrawal, and a separate process (at most exchanges involving manual approval, not sure about Coinbase) is required to move top it up with funds from cold storage. It's a security thing to limit impact of hacks etc.
If you need assets to be immediately available to make on-chain transactions, you should not keep them under custody of centralized exchanges - they can and will delay withdrawals for a variety of reasons and most of them (including CB) do make this clear in ToS.
Now with Travel Rule regulation coming in (CB already started enforcing this in some countries but it will become mostly global over time), you need to specify name and physical address of recipient when withdrawing and this can be subject to manual checks as well, so withdrawals being delayed will become the norm IMO.
I just consider Coinbase and it ilk as "safe" places for cryptocurrency. I don't think of them as ethical in the same way I'd think of an account at TDAmeritrade, Schwab, etc. Traditional brokerage houses have regulations forcing them to play fair, and reporting structures to enforce it.
Crypto exchanges are trying to convince the world they are a more secure place for your coins. Better IT security and highly funded enough to probably make good on any hacks. The synergy is they want to keep me safe so they can keep their reputation (and their reputation gives them more business).
Is that a fair deal? That's for each of us to decide. Keep your coins where you wish.
I appreciate your sentiment, but I want to point out that your belief that "Traditional brokerage houses have regulations forcing them to play fair" and believing that there are adequate "reporting structures to enforce it" is a great example of the moral hazard that exists in the market today.
I agree that law and regulation plays an important role in the market, but as the market has advanced and become increasingly more complex than previous models, I do not believe Law and regulation has kept up.
The GME fiasco and the resulting litigation is a good example of these problems. And before anyone says this is proof the rules in place work - I'd like to point out that our online brokerage infrastructure and market structure has been around since the early 2000's. It's quite difficult to say what has not been surfaced and recognized. And no, despite the nature of the trade itself, no one should discredit the lawsuit as illegitimate. https://www.thinkadvisor.com/2021/01/29/gamestop-lawsuits-hi...
The absurdity and extreme nature of the GME case shows tells me that there are outstanding issues throughout this value chain. And the belief that our system of rules adequately handles this just because the rules exist is a strong indicator of the moral hazard that prevades our market culture.
Everything is relative. You cite GME, fair point. I'll cite Quadriga CX, where the founder died in India and took the passwords to the grave with him. Pretty much everyone had their coins frozen forever. That would never happen to people's stock portfolio's at a major brokerage firm.
The SEC is far from perfect, but what they do adds value to the individual investor in general.
Even real brokerages often make mistakes, we hear lots about the ones at Robinhood, but it happens at others too. Coinbase will not always the the luxury of undoing their mistakes.
Why is everyone discounting the possibility that this is a Coinbase controlled account? They would surely need to purchase the tokens before they list them.
Could be sufficient for (limited) market making. There are dozens of explanations for why Coinbase would want to hold these coins. They're not just an exchange anymore, they offer many other services.
Coinbase almost definitely acts as a market maker as well. I would be very surprised if they didn’t at least seed the order book a little before listing new pairs.
That's not how coinbase operates. You have a "Buy <Coin>" button, and you expect to get that coin without fail, every time. If a new token launches, you should be able to buy it without waiting for users to deposit and sell. Maybe you're confusing with coinbase pro, which uses the more traditional order book model, or with other exchanges?
Coinbase adds new assets to the pro option first, establishes a market, and then adds to the retail Coinbase "buy button" app. When a user hits the retail Buy Coin button, the internal market maker fills the order against the coinbase pro's order books.
This is not new at all. I recall reading a post on reddit describing insider trading at coinbase years ago. That was back in 2016 when they added ETH. Apparently someone knew they would list ETH, days before it happened.I couldn't find the post, but this came to my attention: https://www.bbc.com/news/technology-42425857
There was a time when this would work. But as we've seen with high profile taken downs, the folks like those at Chainalysis make it incredibly hard to obfuscate with any degree of certainty.
Withdrawals from Coinbase to would be indistinguishable from temporary insider trading accounts. And there are certainly a lot of withdrawals. And in many cases the trading happens off chain anyways
Imagine you you had a magic button that suddenly increased demand for a volatile security any time you pressed it. That would be a fairly valuable thing for some people.
If I have information that the price of x coin is going to go up and my friend knows I know, then they just need to follow my trades and they can make money too.
If enough people follow my trades then this can generate demand and actually affect the price.
Yeah. Bitcoin for example has rich lists: we know the addresses of whales and can track their movements via the blockchain. Some rich person suddenly moving hundreds of thousands in bitcoin to an exchange can be a potent sell signal.
I think that the best way for Coinbase to combat this is to make as much information public as possible in as close to real time. For example they have a listings website - make every application public in real time. If there are meetings about which asset to add then make the meeting public or the minutes immediately after the meeting. The only way this can be exploited is because there was some lag time between assets that were considered to be listed and the actual announcement.
It doesn't help that they have employed some highly unethical actors in the past and completely failed to do their due diligence. For example when they employed people that were involved in selling hacking tools to nation states that were used in human rights abuses.
it doesn't work that way. Coinbase's Asset Listing team contacts an inbox I'm on all the time just because an asset was indexed by their price tracker or Coinmarketcap once.
There is no reason for that to be made public, and no reason for an insider to find a liquidity pool on Uniswap to start buying that token.
'At Coinbase' isn't in the tweet and it implies this was done by Coinbase emoloyees while it's possible that e.g. someone involved with the project itself did it.
Why wouldn't they? The risk of getting caught is virtually zero if you do it right and even if you get caught you get a slap on the wrist and a fine at best. It's just pathetic that for a company which so hard tries to legitimize crypto they have issues like this over and over again. The inherent nature of a "get rich quick" ecosystem where the incentives to pull all kinds of shady and illegal actions are too high and the repercussions are basically non-existent.
In the world of cryptocurrency, even the wrist slap isn't a given.
To me, cryptocurrency has been a very cool social experiment in what pure unregulated free market capitalism would work like in practice. Supposedly in place of regulations, companies would live on reputation and trustworthy business practices. If you use poisonous lead in your soup cans, people will stop buying your soup when word gets out, no need to regulate, companies will self-regulate to stay profitable and relevant.
Reputation and trust is probably the most important thing Coinbase can hoard, it's the one way a legitimate company that acts like an exchange and/or bank for cryptocurrency can use to rise above all the scams and dubious services that's going on in the cryptocurrency world. And yet here they are pissing it down the drain for easy short-term profits. Surprise surprise.
The truth is, trust, reputation and even human lives are just input values in the big equation of profits. The free market will always optimize for the best option, even if that option is an overall net loss for humanity.
The experiment wasn't even necessary - the Gilded Age was a libertarian's paradise with the gold standard and very little government regulation. What do we most associate with this era? Robber barons, utility monopolies screwing people over with ruthless business practices, confidence men and literal snake oil quack medicine.
I genuinely can't think of a good (ie moral) reason to support the idea given how it is predicted to, and has been shown to, play out.
>The experiment wasn't even necessary - the Gilded Age was a libertarian'paradise with the gold standard and very little government regulation. What do we most associate with this era? Robber barons, utility monopolies screwing people over with ruthless business practices, confidence men and literal snake oil quack medicine.
The rate of economic growth and improvement in people's living standards was much higher back then than it is now.
Similarly the average adult back then was much healthier than the average adult nowadays, who is likely overweight or obese with some chronic illness. In spite of the vast amount of pills modern people take. So healthcare hasn't necessarily improved much either.
So we can ignore that cancer used to be a guaranteed death sentence, polio was a thing, children got rickets, a septic wound could kill you, an ulcer wasn't a course of pills to get rid of, tuberculosis was rife.
The gilded age was no paradise and rose tinted views of the era just don't hold up to scrutiny.
I don't know what the Gilded Age was (and too lazy to search) but, I quote "Over the past 160 years, life expectancy (from birth) in the United States has risen from 39.4 years in 1860, to 78.9 years in 2020"[1] so please do show some support for the affirmation "the average adult back then was much healthier". Unless you mean they all died healthy around 40 years of age - as in, they were totally healthy until 40 then the first illness killed them clean.
While your point is absolutely true, note that life expectancy shouldn't be taken as the literal age most people die. It is the expected value of your age at death. Just like the expected value of a coin flip being heads is 0.5, but no coin is ever 0.5 heads.
Life expectancy at birth in the times before modern medicine has always been dragged down significantly by the huge rate of infant mortality. It was more common for a family to have 1-2 dead small children in their past than not. People who lived past 5 or 10 or so would often live to see 70 or so, and 80 or 90 year olds were not unheard of.
That's the nice thing about statistics, we will always have outliers to cherry pick. One can play with the graph at will, but also US men life expectancy at 5yo increased from 55 to 80 in the last 150 years: https://mappinghistory.uoregon.edu/english/US/US39-01.html. That's without infant mortality.
> The rate of economic growth and improvement in people's living standards was much higher back then than it is now.
During the industrial revolution? I would expect so. At this point we're on the tail end of those improvements.
> Similarly the average adult back then was much healthier than the average adult nowadays, who is likely overweight or obese with some chronic illness.
Life expectancy has been going up for a long time, but on the obesity front the advent of highly sugary foods thanks to food giants is a result of profiteering, not regulation, and people driving everywhere instead of getting exercise is not because of regulation (though it is due to city planning).
> So healthcare hasn't necessarily improved much either.
Are you sincerely arguing that modern medicine isn't much of an improvement over snake oil medicine? The discovery of penicillin alone has saved literally billions* of lives, to say nothing of painkillers, modern surgical hygiene, pharmaceuticals, vaccines, just so so many improvements in healthcare. I can't take this argument seriously I'm afraid, I can only assume it's a post hoc rationalisation.
* hundreds of millions, I misremembered the number.
>What do we most associate with this era? Robber barons, utility monopolies screwing people over with ruthless business practices, confidence men and literal snake oil quack medicine.
Speak for yourself. Most well read people associate it with urbanization (made possible by industrialization of agriculture) and huge standard of living improvements that came with the long tail of industrialization. Such "luxuries" as off the shelf clothing, meat products, electric lights, etc. etc became readily available to the common man at a price he could afford at that time.
Okay to clarify, I meant the excesses of the age. It was also a time of expansion driven by the inventions and discoveries of the industrial revolution and the discovery of oil. But when people make the argument that libertarian policy would lead to the market moderating companies' and entrepreneurs' worst instincts, I think the Gilded Age shows otherwise.
Economically speaking insider trading represents a net positive for the market as it brings information onto the market sooner, allows it to reach a better price sooner. The only people hurt by insider trading are those to whom the person doing insider trading has a fiduciary duty, which for a Coinbase employee would be Coinbase itself.
Other markets like commodities and real estate have gotten along perfectly fine without any insider trading laws.
> Economically speaking insider trading represents a net positive for the market as it brings information onto the market sooner, allows it to reach a better price sooner.
No, economically speaking insider trading just hurts the market, as all free market models work only in so far as all actors have equal access to information. Unequal information makes the market less efficient. Hidden information that is not used in trades doesn't affect market efficiency, as all actors get a chance to decide a new price once the information becomes public.
> The only people hurt by insider trading are those to whom the person doing insider trading has a fiduciary duty, which for a Coinbase employee would be Coinbase itself.
No, the people most hurt by insider trading are the cpunter-parties to those trades, who are acting on inferior information. It is a type of fraud - I'm acting as if the publicly known information is up to date, but in fact I know something the rest of the market doesn't about the value of the good I'm trading. It's like selling beans that have been publicly shown to be magical, while I happen to know the public show was staged and they are in fact normal beans.
> all free market models work only in so far as all actors have equal access to information.
You need to investigate some better models. The useful ones don't assume equal access to information. Uniform access to information doesn't exist, and moreover distribution of information is one of the functions of the market. Information itself is a good which can only be acquired at a cost. Perfect information (not perfectly equal information) would indeed improve efficiency, but that doesn't happen on its own. Unequal information is better for market efficiency than less information; in a trade between A and B, both A and B knowing a relevant fact is ideal but only A or B knowing leads to better trades than neither knowing, provided neither party is actively deceiving the other about the nature of the goods being exchanged.
> It is a type of fraud - I'm acting as if the publicly known information is up to date, but in fact I know something the rest of the market doesn't about the value of the good I'm trading.
"Acting as if" is not the same as making an actionable claim. You are under no obligation to advise anyone on future market conditions. It's only fraud if you make the trade under false pretenses which, unless you actually claimed to be making the trade based on only public information, is not happening here. The product being sold is exactly as described; whatever might happen in the future to affect its market value is out of scope.
> It's like selling beans that have been publicly shown to be magical, while I happen to know the public show was staged and they are in fact normal beans.
There's nothing wrong that so long as you're not misrepresenting your product as having some sort of magic properties (which would include being involved in that staged demonstration). There is no fraud here as long as you do not claim that they are magical. What anyone else might claim about them and the motivations for buying them are not your concern. Your role is simply to provide the advertised product.
> No, economically speaking insider trading just hurts the market
I think that at least needs a qualification around what is meant by "hurt". If you were to look at the speed with which information might enter the market, insider trading restrictions might slow things down, for example. Not arguing for insider trading here, but the academic discussion - as I recall it - was/is a bit more nuanced.
Nope. "Non-public information" is part of the definition of insider trading FFS. Only the secondary information represented by the transaction itself becomes public. The counterparty gets what they think is a good price but turns out to be a bad one because of the hidden information. That's a tangible loss to them, and any further trades they make while their putative and actual situations diverge will create more misleading market signals. This is such basic knowledge that it should be required for anyone trading anything riskier than an index fund or seeking a job in finance.
There is no economic utility in this system to begin with. So even if this were true, they would be optimising a quantity that would eventually be multiplied by 0 anyways.
Anyone that loses money they wouldn't have lost otherwise is hurt by insider trading. And if you make it legal, people will try anything to gain insider information.
I would attribute this to either a hacker, or malicious insider, with access to the announcements before they go public. Not official coinbase behavior. It's way way too obvious for coinbase to be doing this, and if they were why would it be in such small amounts. Twitter is great for getting the pitchforks out.
Remember when the news wire was pwned? Someone was selling that news to various investment banks, who would trade on it. I smell a similar thing here.
If coinbase were doing this themselves, would it be illegal? I'm not an expert but I don't think so. Still, it's a very bad look and it strains credulity.
It could also be dumb luck. The same way people look at successful startups and think that is normal. I'd want to see a deeper analysis before judging.
This is going to sound naive, but I've zero idea how to draw my coins out of Coinbase and put them on my Mac / memory stick. I can't seem to find any legitimate source of info on how to do it.
Unsurprising as I said before [0], after what happened with OpenSea [1], Internet Computer [2] and now ApeCoin [3], you get this. This is how they pump and dump on retail over again.
I honestly think you'd be hard pressed to find a crypto business that isn't rooted in some kind of scam, greater fool scheme, pyramid scheme, or the like. The whole industry is a mess.
I mean, most legit exchanges are not 'rooted' in scams, even if some of their employees take advantage. The only way you could say Coinbase were 'rooted' in that is to assume your premise: that crypto itself is a scam.
I don't think most exchanges are rooted in scams no - I'd say they're rooted in a greater fool scheme, given that the main purpose of buying crypto is to sell it for profit and it isn't really used for exchange outside a few niches like darknet markets.
Then I think you are assuming your premise/begging the question. You constructed the conditions in a way that leaves no room for a valid example. If you think crypto itself is a greater fool scheme then purely definitionally there can be no example of a non-greater-fool-rooted crypto business.
This is what I've observed, it's not a prima facie assumption. I was initially optimistic when bitcoin came about. Most of the industry seems to be based on speculation and selling "x but on the blockchain" solutions to nonexistent problems. I also know people who are trying to use blockchain tech to solve real problems, but they're in the minority.
It doesn't look like it, no. But what about that is actually using blockchains to solve a problem? They mention Web3 but I don't know if it's a requirement of some feature or an opportunity for a marketing buzzword.
I don't deny that there are some companies that are trying to do real things with blockchain tech - but most of the money and effort appears to be going into speculation and/or scamming. Which isn't very productive.
I don't claim to have the evidence, I claim to have made an observation. If the parent wanted to make a counterargument they could do, it wouldn't have to be concretely evidence based because I'm not holding a forum conversation to the epistemological standard of a formal paper or proof. Just a good example or argument would be more compelling than just calling my opinion a kneejerk reaction.
Maybe if you throw some more big words in, you will get your point across. Following this thread it is pretty evident that you don't have any evidence for your "all crypto is scam", and are pretty lost when asked for proof.
Calling me names is definitely not something that gets your point across. Pretty sure as we stand you have zero proff for your anti-crypto statements and are resorting to name calling. Definitely something frowned upon by HN.
If you want to say I have no proof that's fine, but I draw the line at sarcastic insults. So don't do that and I won't insult you back.
I haven't collected evidence for my point because I'm not trying to make a court case - I've observed that most people seem to use crypto as a speculative investment, buying coins just to sell them to somebody else who's doing the same. Have you seen otherwise? Like, I don't want to have this negative perception of the industry, I generally prefer to see positive outcomes from these things, but I haven't observed much positive being produced from the industry. Surely if you're a big fan of the industry, you can demonstrate something good about it?
Why would you make a personal attack based on a discussion about an industry? I didn't think this was a flame war, more a discussion about the crypto industry - I'm not upset, I'm just bored because I'm stuck in hospital with little to do. This is a tech forum, so is it not the right place to discuss tech industries and opinions thereof? I'm not even in the minority in thinking the crypto industry is unproductive and largely centered around scams and greater fool schemes.
I'm not sure what your personal attack has to do with this discussion - I guess you could have that opinion if you wanted.
I guess that depends on the point of the community - to my understanding, the point is to discuss. Reasoned discussions are based on arguments and observations, not just evidence and citations. I don't even know what kind of evidence you can bring up for something of this scale - it's not like the are metastudies on where people allocate capital within the crypto market, and what the outcomes aside from wealth transfer. It's a more systemic thing.
I don't even understand how people can argue against this. Do you have the perception that most people are buying coins for reasons other than to sell them again for profit? The only types of studies I find are self-referential in that they report on market size.
The reason I discuss the subject at all is I'm hoping that one day somebody gives me the piece of information I'm missing that shows that the crypto industry isn't just everybody trying to get rich while burning tons of fossil fuels, that there are reasonably positive outcomes from it. So far I just get a lot of angry reactions and accusations of having no proof, despite this not being a court case. Like, show me something good that's been made because of crypto! It's the easiest argument in the world to win.
I'm not sure either of your comments are productive here. You assert that it would be hard to find any crypto business that isn't 'rooted in some kind of scam'. But where's the evidence that coinbase for e.g is 'rooted in a scam, greater fool scheme or ponzi'? There are scammy activities in so much of crypto, but what is pointing to the most visible, normie-facing, publicly traded and regulated American crypto company, being 'rooted' in scamming or ponzi schemes? Because this post suggests a bad actor within or close to the company, or at worst the company knowingly associating with sketchy tokens, rather than the entire company's activities being fundamentally rotten. I know HN likes to be extremely skeptical of crypto, often rightly so, but your comment isn't exactly nuanced.
I did address this in a sibling comment - the exchanges are primarily used to buy and sell crypto to greater fools, and thus they are rooted in a greater fool scheme. The vast majority of use for crypto is speculation.
But you see, even if I did agree that that was the case that all exchanges are rotten, you originally said any crypto business. You think the various businesses that focus on staking, or cold wallet businesses for example, that focus on consolidation and/or security are 'rooted in scams, greater fool schemes, or ponzi'? How?
Perhaps my original formulation was insufficiently precise to get my point across - I mean that crypto is rooted in scams and pyramid schemes and whatnot in the sense that the nature of the industry makes it a magnet for those kinds of schemes and they are the primary driving force behind the money flooding the industry. That doesn't mean that the exchanges themselves are explicitly doing these things, or that all the businesses are either directly engaged in or materially supporting this behaviour (though I think the majority are), but that it's the driving force of the industry in that transportation drives the oil extraction industry.
HODLing is also speculation. I'm saying that crypto isn't driving useful economic activity like investing in startups or small businesses can do. It's all just people trying to make money by finding a greater fool. Even speculation in a normal market can drive /some/ innovation through capital allocation.
Defining a multi-year buy & hold strategy as speculation doesn’t sound like something I can get behind. I get what you’re saying, but I think you’re making sweeping generalizations here. There’s plenty of people that invest in useful economic activity, but also save some money in other assets like gold and bitcoin. You are just calling these people speculators hoping for a greater fool?
Or is it possible that these people have grown to trust bitcoin, seeing it as a savings vehicle outside of the usual currencies?
I'm glad you understand what I'm trying to say, even if "speculation" isn't quite the right term for it.
I think scams are an obvious harm, but the highly financialised and speculative nature of crypto is a more subtle harm: most investment produces positive material side effects like products or services, but because the main selling point of crypto is to continually pass it around in a circle, a lot of money, time, and expertise is wasted on something that is completely unproductive. To be fair, I think this criticism mostly applies to Wall Street too, but most people no longer try to argue that Wall Street is a source of meaningful innovation. To say nothing of the proof of work model leading to ever increasing energy consumption during climate change.
I just don't see much real upside to the crypto industry, and quite a lot of downside.
Are there a lot of businesses in the space not attempting to service lots of new coins that are generally characterized by lack of novelty, lots of marketing fuel, or where if there is novelty vis a vis cryptocurrency, it isn't highly questionable?
For better or for worse, it seems the case that most businesses in the so-called cryptocurrency space are working with some pretty dubious "assets" with some pretty dubious backers, which would make your parent comment pretty accurate.
frankly coinbase themselves are known to accumulate vast acoumts of a cryptocurrency before listing, so its not like they would have a reason to do this in such convoluted way.
A lot of the rah-rah boosterism of "decentralization" is coming from VCs that saw how much money there is to be made by ignoring laws and regulations for long enough. Airbnb and Uber are the most brazen examples of this.
What's left unsaid of course is that the only interest deep-pocketed investors have in dismantling elements of the financial system (MC/Visa dominance, KYC/AML checks, suspicious transactions disclosure rules), is so they can replace it with a system that they personally have an equity stake in.
I think this is the expected cycle of business long term.
1. Entrepreneur notices an opportunity to avoid overzealous regulations and provide better value to customers
2. Everyone wants a piece of the action, bad actors start to move in and updated regulation is required
3. New regulations get out of hand and start to become extremely costly to comply with (see banks)
4. New entrepreneur comes along with a novel way of avoiding said regulations, providing better value to customers again. Repeat.
At any given point in time the industry is either in cowboy crypto mode, or crusty overregulated bank mode. Both have drawbacks, and it’s just a pendulum that swings back and forth.
I work in fintech. I'm not sure what bank regulations you think are overzealous. To give an example, banks can legally keep you from accessing your data. Whether by blocking your screen scraping or providing an API with poor coverage.
You understand I imagine that the regulations don't use the word "unsophisticated" and as such it's a red herring. We have these (few) regulations because banks and their consumers are not entering into a business arrangement on similar footing. I'm not "too big to fail". I don't get a bailout.
Banks love to collude with one another or engage in predatory behavior, and when we repealed the Glass-Steagall act in 1999 it took less than a decade for the subprime mortgage crisis to rear its ugly head. Allowing banks to also act as securities firms will continue to show us these "once in a lifetime" economic recessions every decade or so. And would you look at that? It's been over a decade since the subprime mortgage crisis, yet here we are back in the same glut.
Crypto doesn't solve any of that. It solved double spending. Most of the "exchanges" that people are using are mixing banking and securities, and when crypto blows out there is nothing left to catch most of the retail investors that shoulder that cost. There already are so many examples that listing them is prohibitive, but I'll remind everyone that Mt Gox handled 70% of all Bitcoin transactions at the time and lost 6% of the entire Bitcoin circulation at the time to hacks. No FDIC insurance, do not pass go, do not collect $200. Laissez faire becomes laissez tomber.
I wish people were honest about why they like crypto -- it's a speculative asset in a time when most people can't afford appreciating assets, and it doesn't require an ID if you avoid exchanges so you can buy contraband. The drawbacks are someone can code a button that is difficult to inspect and if you press it your entire wallet is drained with no recourse. Haven't even touched on the energy or silicon expenditures for a system with laughably tiny adoption
You're missing the point entirely. It's not as if the regulatory landscape is only decided by regulators. The fact that we have balance in regulations is because other people push back on regulators (legislators, lobbyists, etc). This is a good balancing act, that should result in reasonably optimal regulations.
But it doesn't mean the moral hazard doesn't exist.
A definition of "adoption" would also help here. Are we counting the zero-sum game speculators as "adopters", or are we counting something like flows enabling the legally compliant exchange of goods and services in the real world?
So a “poor” but highly knowledgeable financial planner making “only” $180k a year can’t invest in their friend’s startup because the regulators deem it too risky. But some random dentist can?
There are financial criteria, or professional criteria to reach accredited investor status. In particular, any investment professional that has passed the Series 7 exam (or a few others) is an accredited investor.
That regulation seems sensible to me, and not overzealous.
The dentist can weather the poor investment. Knowledge does not make you financially solvent. It just improves your gambling odds as it relates to equity investment.
Super off topic, but the wealth gap is exacerbated by not taxing the wealthiest at a high enough rate, not regulations against capital market participation in highly speculative ventures. To argue that accredited investor regulations are the problem is no different than arguing for lottery tickets or penny stocks as an investment strategy for low income citizens.
Lotteries are super regulated though, it's (no matter the country) an utter nightmare, even stuff like a school's trinket raffle. The reason is a shitload of people making "easy profits" by frauding people.
The wealth gap isn't going to shrink by making it easy for startups (or "startups") that can't convince rich strangers (or friends and family, or crowdfunding platforms) they're worth investing in to convince larger numbers of less rich strangers to do it instead.
Most companies funded by professionals go bust and the risk adjusted returns to VC as an asset class aren't that great: the funds that have spectacular returns being balanced out by those that lose their LPs money. And few unicorns are going to be spending their effort pitching average earners for $2k cheques. Why would we expect the average joe to invest better than the pros with less capital to diversify, no board seats and substantially worse dealflow?
You're not going to find a welcoming crowd here criticizing startups on Y-Combinator news, a site written by Paul Graham and a site catering to a startup accelator's usual audience.
This isn't necessarily a bad thing. It's probably good to stop strangling the economy for a bit once bad actors disappear. Moreover, in many cases the regulators themselves are corrupt (e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash), so the regulation may not be delivering the intended value and taking another swing at it in a decade may not be the worst thing. Further still, in a few cases, the regulation may actually not make sense any more due to some change in the landscape--it might be similarly good to back off the regulation, see what problems arise, and address them accordingly (i.e., control loop).
I cannot think of a single previous business cycle that was driven by this dynamic. Can you give some historical examples? This strategy seems unique to the most recent generation of capitalists (sharing economy, crypto stuff, etc).
The 2008 bubble was largely driven by the deregulation of financial instruments (and non-regulation of new instruments) in the late 1990 and early 2000.
Lehman Brothers didn't know, Barclay's acquired them for pennies. Same with Bear Sterns (JP Morgan acquired) and Merrill Lynch (BofA acquired).
Also quantitative easing began as a result of the massive loss of trust between banks as a result of the crisis. Every central bank in countries with big financial centers had to follow a similar playbook.
The concept of visa/mastercard was also largely unregulated at the time they launched. Take a look at the history of visa article on wikipeida https://en.wikipedia.org/wiki/Visa_Inc.#History
Visa was not the first, and other tries to do a credit/charge before them were much worse or limited in scope. This is similar today to what is happening in web3/crypto. If you don't think the ingenuity of humans will get us somewhere productive with these technologies, then I don't know what to say to you.
Quotes from the article about the launch of visa:
> In the weeks leading up to the launch of BankAmericard, BofA had saturated Fresno mailboxes with an initial mass mailing (or "drop", as they came to be called) of 65,000 unsolicited credit cards
> By March 1959, drops began in San Francisco and Sacramento; by June, BofA was dropping cards in Los Angeles; by October, the entire state of California had been saturated with over 2 million credit cards and BankAmericard was being accepted by 20,000 merchants.[18] However, the program was riddled with problems, as Williams (who had never worked in a bank's loan department) had been too earnest and trusting in his belief in the basic goodness of the bank's customers, and he resigned in December 1959. Twenty-two percent of accounts were delinquent, not the 4% expected, and police departments around the state were confronted by numerous incidents of the brand new crime of credit card fraud.[19] Both politicians and journalists joined the general uproar against Bank of America and its newfangled credit card, especially when it was pointed out that the cardholder agreement held customers liable for all charges, even those resulting from fraud.
The Cold Start Problem, by Andrew Chen, devotes a chapter to this as a case study. I don’t recall it covering these negative aspects, which are obviously important to consider. Still a great book for startup growth ideas though.
> This is similar today to what is happening in web3/crypto. If you don't think the ingenuity of humans will get us somewhere productive with these technologies, then I don't know what to say to you.
They won't, because they achieve nothing that can't already be accomplished with proven technologies. Axie Infinity could easily be built using regular plain old databases, but they built in on the blockchain using a terrible bridge architecture and as a result had $600 million stole. Such innovation.
"As all tech industry observers are aware, the twin pillars of a successful startup are cost shifting (i.e. user generated labor) and regulatory arbitrage (i.e. tax avoidance)."
To me, and many others active somewhere on the "regulated finance" spectrum, the way crypto kept going on and on how awesome "deregulation" is from a consumer standpoint was tragically ironic. The vast majority of regulation is there to protect market participants.
People involved with GME used to refer themselves as the "Apes", and reading their main forum on /r/wallstreetbets back then, that would be a pretty accurate characterization of what they "know".
I actually think the opposite. Causing a short squeeze is market manipulation. Regulatory agencies let it happen anyway because it was done by random nobodies.
I'll believe their not allowing it when their soft gums and limp regulations have teeth again. Fines are a cost of doing business in many cases, unfortunately.
I think crypto fans want transparency and an equal playing field, and are more afraid of things like regulatory corruption and markets that are not open to them. It is not clear that "regulated finance" prevents comically unfair outcomes either. You still have insider trading that is legally protected, discriminatory rules like accredited investor qualifications, and abuse of the legal system by the rich to avoid regulations with loopholes or lobbying.
Um, being an accredited investor gives you exposure to investments that aren’t transparent. You don’t get the same access to financial statements as with public companies.
If you want more transparent investments then you should be advocating for reforms that will encourage companies to go public sooner. This would be reversing the trend in recent years where companies stay private longer, which allows them to not disclose how they’re doing.
Accredited investor rules was an example of not having a even playing field. The market is not open to everyone which contributes to unfair outcomes. I'd welcome reforms to transparency as well there, as lack of transparency also contributes to unfair outcomes (the company can exploit investors).
> Accredited investor rules was an example of not having a even playing field.
1. Having an income that qualifies you as an accredited investor doesn't mean that you will have access to higher quality investments.
2. Even if you don't qualify as an accredited investor, you probably still have access to the same set of investments that a capital-poor accredited investor has access to. As an accredited investor, I've never had access to an investment opportunity which I couldn't have also accessed without being an accredited investor. No one checks, and the "opportunities" are mostly not great anyways unless you have a lot of capital and connections.
The operative things that unlock unfair investment opportunities are 1. one's professional network (or family), and 2. access to large amounts of capital.
You can counter this assertion by providing a list of investments which are open to all accredited investors, do not require significant amounts of capital, and which have higher expected return with lower risk than investments that are available to non-accredited investors.
The common misconception that becoming an accredited investor suddenly gives you access to high quality investments with super high returns for low risk is one of the best justifications I've ever seen for keeping the rule in place... which is particularly funny because I'm not even an avid fan of the accredited investor rule.
You are basically saying that accredited investor rules are not successful in excluding people from making certain types of more desirable investments, because there are other barriers that are in place anyway. I think this is true, but beside the point. If you want to have an even playing field for investing, every barrier is an obstacle.
I think you missed my point. To reiterate: the fact that people believe that it's not true is, ironically, a convincing justification for the accredited investor rule.
I'm pointing out the irony, not defending the rule per se.
> If you want to have an even playing field for investing, every barrier is an obstacle.
This clearly isn't true.
First, it's sort of prime facie false. Investments usually happen in markets. Markets are human inventions comprised of collections of barriers on behavior and enforcement mechanisms for those barriers. (Investments that happen outside of markets do exist, but they usually involve violence and/or coercion under threat of violence, so probably not what you mean when you say investment.)
Second, there are many ready examples. E.g., SEC filings and public exchanges are clear barriers to entry in fund raising, but also clearly level the playing field. The alternative is that the only way to know about a company's finances is to know the right people.
I agree that markets are not natural and don't happen magically without human oversight and rules. But generally we want those systems to increase participation in the market. The criteria of net worth as a obstacle to market participation seems pretty indefensible here. It is hard for someone to commit to changing their net worth in the same way that a company can decide to become public, or that a wealthy person can sign a contract saying they are aware of investment risk. I would support some rule like "you must have either this net worth or prove that you are knowledgeable about investment in some way". The criteria has to be something that people are able to overcome.
At the risk of sounding like an incredibly broken record:
>> I think you missed my point. To reiterate: the fact that people believe that it's not true is, ironically, a convincing justification for the accredited investor rule. I'm pointing out the irony, not defending the rule per se.
and
>>> I'm not even an avid fan of the accredited investor rule.
So, as I've stated in every single post in this thread, I'm not defending the accredited investor rule. Cool?
The justification for the accredited investor rule is "people are idiots". Again, not even that rich = less of an idiot. The premise of the rule is that rich people can afford to be bamboozled by scams and shitty investments... er, I mean, take on "higher risk investment opportunities".
I find that justification uncompelling on face.
But then people come along and complain "I can't use prosper.com to make unsecured personal loans to randos for an expected return of 5.7% per annum on loans with 15%-20% APY during a time when every other asset class out-performed and with the front end of that window overlapping with a time when unfathomably higher quality debt products were offering similar returns on 3 year timeframes". And just listening to them makes me second-guess myself.
My point? It is ironic and humorous that the most compelling justification for the accredited investor rule is listening to people talk about how they would invest if the accredited investor rule didn't exist.
For the record, since people keep completely losing the plot: I think something like an educational requirement makes a lot more sense.
neither you nor parent post are absolutely right, of course. In the USA in the 2000 era, a lot of people with the ability to place large betting stakes on the table, using access to market-makers and leveraged buys of all kinds, were able to push around a LOT of money, mostly profitable, for quite a while. The party ended, except it didn't. The same over-leveraged tactics by players with access, except this time against one of the most protected asset classes, homes, almost collapsed the entire system with their excess. There are tomes written about this now, fifteen years later. Its not clean, fair or balanced.
On the customer side, this website offers high APY personal loans (my credit card is literally a better deal). On the investor side, the advertised rate of return is 5.7% between 2019 and 2022.
1. An effective return of 5.7% on unsecured loans with 15%-20% APY is... not a good deal. This signals either exceptionally high origination fees or extraordinary risk. Except it looks like you are investing in individual loans? So you don't even get this amortized 5.7%, but actually something that looks closer to "either 15% return or you lose your principal".
2. The rate of return is lower than every other broad asset class over that time period except for investment grade bonds, which weren't that far behind in 2019 and were probably a better deal given the enormous difference in risk profiles. Certainly high yield corporate debt was a way better deal on a risk-adjusted basis than given randos high-yield unsecured personal loans.
3. Most importantly, to my original point, you can get much higher quality exposure to high yield consumer debt via any brokerage account.
This is sort of exactly what I mean. Most of the "opportunities" widely available to accredited investors are really shit deals.
> Prosper.com and similar lending platforms do not require a lot of capital but users are required to be accredited investors.
Last I checked to be an accredited investor, in the EU at least, you had to have 1 million EUR available for investments. So an organism (like a bank), where you have that amount, will certify that you have it and then you can get labelled "accredited investor".
As a sidenote I don't see it as proving you're savvy or anything: it's more like a club where they don't want "plebs" to pollute their members.
Also, if prosper.com is the "club", then it's a pretty shit club. VISA provides exposure to the high yield consumer credit market and had returns that were modestly higher than prosper over the same time frame. By which I mean ~100% appreciation over 3 years vs. 5.7% per annum. And the risk profile of the equity play might even be lower; we don't know, since the distribution of defaults is not published by prosper.
These days there are a number of platforms like Globevestor that show the kind of deals available to accredited investors. They don't get you access to the same deals that you get by working Sequoia, but that's still better than what non-accredited investors get access to.
(WeFunder, specifically, tries to skirt the accredited investor regulation and offers tiny (they advertise "as little as $100") investments to non-accredited investors. It's not clear to me how they're doing that legally other than handwaving "crowdfunding platform" around.)
Accredited investor status itself doesn't give you access to higher quality investments, but it keeps the poors out from being able to angel invest in their professional network. If I'm not an accredited investor and I have $10k that I've saved up and want to plow into my kid's friend's uncle's big thing that they're working on? It might turn out that the uncle's a total scam artist or the next Elon Musk, but it's my $10k. I'm allowed to go to vegas and put it all on black if I wanted to, so why aren't I allowed to invest same as an accredited investor?
The accredited investor rules are in place to protect people who can’t bear the losses from an extremely adversarial financial system. I promise you that even if you get rid of the rules, people with a few thousand dollars to spend still would not have access to the best investments.
I believe that every financial transaction has the potential to be adversarial, there are many ways outside of investing that the poor are disproportionately exploited (lotteries, debt interest). I think the libertarian perspective is that we shouldn't have protections that prevent people from making personal choices that result in harm to themselves, but only from harming others. I think that transparency for the companies seeking investment, or education of the investors themselves are better ways to restrict investment. Net worth/Income is not a fair criteria.
> I think the libertarian perspective is that we shouldn't have protections that prevent people from making personal choices that result in harm to themselves, but only from harming others.
There are a few ways that someone bankrupting themselves via bad investments does hurt others:
Dependents will be significantly harmed
They are more likely to end up homeless or in jail on the dime of society
They are less likely to be a productive member of society.
I suppose the libertarian response would be that if someone bankrupts themselves, let them die homeless on the street - but I don't think you'll get agreement from any significant portion of society on that approach and even then someone has to pay to clean up their body.
Accredited investing requirements are to keep non-experts or people without money to lose from being swindled by companies which aren't required to be transparent with their financials.
Could you be clearer about what you mean by transparency? Do you think private companies should make their financial statements public? Do they need to be audited?
I think trading on the basis of private information at the expense of other shareholders without the same information is the problem. I'm less concerned about the specifics of filing requirements, and more concerned about information asymmetry regardless of auditing/reporting obligations. I'm not sure I know enough to recommend a specific policy here, my original comment was just what I believe to be some of the flaws that 'crypto fans' see in traditional systems.
However, reporting requirements and auditing are all about making sure everyone has access to the same, accurate information about a company's financial situation. Insiders will learn about changes in a company's finances before outsiders. If they can disclose this to some investors but not others, or even disclose it to some investors first, then that increases information asymmetry.
But this doesn't seem to be something that crypto fans are interested in, because they're not really investing in companies?
As I see it, insider trading rules are less about "information asymmetry" and more about avoiding conflicts of interest between the decision-makers in a company and the investors they are supposed to be working for. It is a given that not everyone will have exactly the same information—combining all those separate viewpoints to arrive at a single market price is why the market exists. However, the insiders have a duty to their employers—the shareholders—and insider trading puts the insiders' personal profit at odds with the decisions which will best benefit the company. They weren't given access to that information and a position where they can guide the direction of the company for the purpose of enriching themselves at their principals' expense.
The difference being: Under this interpretation insider trading is purely a dispute between the shareholders and their hired employees / agents. No one else has any standing.
I think if the investment story of companies was better, maybe there would be less demand for crypto in the first place? Another big appeal is that in crypto the rules (governing the crypto itself) are not changeable by humans. This eliminates a large category of manipulation by insiders (while opening the door to other problems).
One could argue that companies ought to go public sooner, with the concomitant obligations and transparency on one hand, and the investment opportunities for unaccredited investors on the other. Rules with criteria such as revenue, employees, or something could achieve that.
Equating public financial statements with "transparency" is a fallacy. It creates moral hazard and over-emphasizes private audit facilities.
Is it objectively better than non-public financial statements? Maybe. Is it worth saying this alone should draw the line on what is considered a "safe" investment? No.
Again, the OP is asking about access, not what you believe about "transparent investments"
"Crypto fans" never wanted centralized exchanges dominating the entire space. Cryptocurrency was invented to put an end to banks, not to create new unregulated pseudo-banks that are even worse than the previous system. You think we're not aware of the fact that exchanges have access to vast amounts of market information? They can literally bet against their own users on futures if they want.
We want deregulation when it comes to our money. We want the ability to transact with absolute unconditional freedom and privacy. These exchanges? Hell yes, go ahead and regulate the crap out of them. They are not our friends. They're banks. The biggest failure of crypto is the need for exchanges. We were supposed to mine our own coins and use them in everyday transactions.
From my experience in cryptoverse, you and all the idealists who still think like this are in the minority, completely swamped by all the people who don't care which way it goes so long as they get filthy rich
Exchanges create the use case for virtually every transaction. Strict P2P is closer to the original vision, but the world of using crypto as a fiat proxy, the potential for profit, and the entire industry of mining equipment, etc, is made possible by the fiat-crypto bridge enabled by exchanges.
>Crypto fans get mad when deregulated finance is comically unfair.
I’m curious as to where you’ve seen this sentiment from crypto fans? It seems most of the people getting angry about this are people who already disliked crypto and are using this event to add more fuel to the flames.
That's not a general observation about all, or even most, "crypto fans" as the earlier comment implied but rather just part of the Ethereum community. And it was still decentralized, as a majority of the users of Ethereum had to agree to the fork before it could take place. The DAO fork was a bad decision and set a poor precedent but it's unlikely to be repeated—a fork in the chain at this point would have too much impact on too many other tokens to be a viable solution to a single buggy smart contract.
I doubt non crypto fans are doing investigatory research into Coinbase insider crypto purchases and complaining about it on Twitter, Reddit, and HN. Just a hunch.
Is that a joke? That group is always looking for things they can point to and say "see I told you crypto was bad". This is typical of any industry or topic to actively look for confirmation bias, it's just human nature.
This is a strawman. It also paints “crypto fans”, as some monolithic group that all think the same way.
I am a crypto fan and do not “want deregulated finance”. It is not “exactly what crypto is all about”. I think most in the space would actually like to see more sensible regulation.
> It also paints “crypto fans”, as some monolithic group that all think the same way.
This is unfortunate. However, in my experience of crypto fans it seems like a large - probably very large - majority of them are fans of deregulation and consider this one of the main positive points of crypto. Would you say that's incorrect?
I don't understand. If you have regulation, you need people that interpret and enforce that regulation. In other words, you need trust. If your system is predicated on trust, you can dispense with the blockchain that does a lot of unnecessary busy work, and replace it by a few guys with an Excel spreadsheet or two, and regulate them. The environment will thank you.
This is such a nonsensical argument. Crypto is a huge space with myriad benefits, which are not negated by having some elements regulated.
For example, perhaps you are in favor of crypto because it is (i) harder for a state to seize or (ii) impossible for a single state to inflate. Those are in part possible because of the distributed decentralized nature of cryptocurrency. Being in favor of those two things does not mean you cannot also be in favor of regulating people that manipulate crypto market by wash trading, in favor of arresting thieves and hackers, in favor of banning insider trading, etc. You can have a system with trustless elements and that still relies on the laws and regulations to enforce certain aspects.
So, you're saying, the government can arrest thieves and hackers, ban wash trading, ban insider trading (and, presumably, enforce that), but cannot ban or seize crypto itself?
I think this is the "have cake and eat it" scenario. Crypto fans want a fresh supply of dumb money into the system to keep their line going up. But also want the more complex scams that might catch them out regulated away.
I think "crypto people" are tired of things being a constant state of flux and just want governing bodies to make some kind of decisions. People really want to know what the rules are so they can make more informed decisions.
This is quite true. Many of the calls for regulation by "crypto people" which I've seen are really just a reaction against an uncertain regulatory environment. In short, they just want the regulators to make up their minds already. The biggest wildcard and source of volatility in the crypto space, IMHO, lies in the inconsistent and unpredictable responses we've seen from politicians and bureaucrats, not the tech, the state of the market, or the possibility of falling for some kind of scam.
However, one should keep in mind that certainty is not necessarily better—it depends on what the rules are. Operating in a grey area is better than being banned outright, and overly strict regulation can nullify all the advantages of a new system by forcing it into the mold of the old system it's meant to replace. The ideal outcome is that they explicitly adopt a hands-off approach so that the threat of adverse regulation is removed without being replaced by known adverse regulation in the present.
Very true. The assignment of values to the "group" has been a problem since the beginning (for instance, anonymity wasn't even in the white-paper, but is a common perceived value of crypto)
Do they though? Are you certain these are the same people or are you just lumping them all together as crypto fans because it allows you to shit on then? Crypto fans aren't all the same, it's a bit like saying all HN users hate crypto. They dont, it's a crass generalisation used to score some useless internet points.
Eh, I think half the problem is that I've met a lot of people who spout the "Pro-life is not anti-choice!" line. They're in favor of legal abortions, yet call themselves pro-life.
It gets muddy when you start to talk about wanting it "legal only under certain circumstances". How the people in that group identify is essentially a coin flip.
> And, actually, most Americans support limitations on abortion.
Yes. Like, I think it should only be legal during the first trimester. I still call myself pro-choice.
Your link shows 81% in favour of abortion, with or without some restrictions, with 19% against abortion. Wanting abortion rights is not synonymous with being pro-choice, which carries implications of no restrictions at all.
I hope I didn't misunderstand what you wrote, but where did you get the idea that being pro-choice means the ability to get an abortion from 0 months to 9 months pregnant?
There is obviously a spectrum to being pro-choice, but if I had to bet I'd put the majority of pro-choice folks follow: that woman has the right to choose to have an abortion while the fetus is generally considered pre-viability by the medical profession and under extreme circumstances where the life of the mother is at risk and/or the baby is now non-viable or will suffer a short and traumatic life.
I think the post you're responding to is correct according to the survey you shared.
First, a quick note. The gallup poll posted by onlyrealcuzzo seems ripe for "lying with statistics" on either side of the issue. For example, we could say "only 32% of people are totally pro-choice" but could also say "open 19% of people are totally pro-life". We could say "60% of people support Roe vs Wade" or we could say "most Americans do not support third trimester abortions without special reason".
Interpreting the poll with respect to a specific claim therefore requires care.
As a reminder, GP stated:
>> Americans want abortion rights then they pass laws against abortion.
First, do Americans want abortion rights?
The only question on the poll that directly asks about "rights" is the question about Roe v Wade, and nearly 60% of respondents do not want Roe-Wade overturned.
Second, do Americans oppose laws being passed against abortion?
Only 22% of respondents are dissatisfied with current laws and also want stricter abortion laws. More importantly, GP's characterization is STARKLY true if we look at how laws have changed recently. E.g., the new Oklahoma and Idaho laws ban abortion in cases of rape/incest. The gallup poll indicates that a whopping 83% of Americans support support first trimester abortions in cases of rape/incest, and that number is still over 50% in the third trimester. This is a clear and unambiguous case of GP being correct according to onlyrealcuzzo's source.
I think it takes a lot of mental gymnastics to interpret the gallup poll as stating that Americans don't oppose the types of abortion laws being passed now, sometimes in strikingly huge majorities.
The whole point of crypto is that it was a form of currency that's unregulated, so a more accurate comparison would be "open source advocates complain when other people use their code without their knowledge. Can't make this up!"
This is the kind of snarky, evasive answer that flippantly dismisses any counter argument and is so typical on this particular site when it comes to anything involving crypto. Never mind that the comment it replies to asked a perfeclty valid, serious question and mentioned exactly the heap of SEC regulations Coinbase is governed by. Absurd.
There are SEC rules against insider trading, yet here appear to be instances of insider trading at Coinbase. So, either they don't apply to these transactions at Coinbase, and insofar this company is deregulated; or the company flouts the rules.
What does this even mean? I’m a crypto fan but I dont want to deregulate finance completely. So maybe i’m not a crypto fan. Or maybe the crypto fan online isn’t really representative of reality like most online communities that are largely based off what reddit is spouting.
Im not close to being alone on this. I don’t know anyone in my life who is a “crypto fan” and doesn’t think rules should exist around exchanges.
It’s easy to fight the boogeyman and the HN boogeyman is one of the silliest ones I have seen.
Just like any other group of people, crypto fans are not a monolith.
There certainly are some extreme libertarians that think nothing in the financial world should be illegal and that the Free Market(tm) will sort everything out on its own. To them, insider trading isn't unethical, quite the opposite. People should be using every advantage at their disposal. To them, getting a job at Coinbase to get the inside scoop on upcoming coin listings would be a genius move.
> To them, insider trading isn't unethical, quite the opposite.
This does not follow. Even under the most "extreme libertarian" position insider trading, narrowly construed, would still be an unethical violation of the agent/principal relationship which exists between the employee and the company's owners (the shareholders). Abusing confidential information you have access to as a result of your position for personal gain at the expense of the shareholders would be violation of trust—and most likely a direct breach of your employment contract.
> Crypto fans want deregulated finance. Crypto fans get mad when deregulated finance is comically unfair.
I don't think this is a fair characterization. Most crypto fans I know want regulations, they just want them clearly defined and enforced with software and distributed consensus rather than through corrupt and ineffective organizations like the SEC.
Trading (around crypto) made me realize that systems will always get twisted in all possible ways as long as some group can find a way to benefit. The finance world is filled with subsystems with different information sources and interest. This led to recurrent patterns and more subtle ideas. You cannot know this unless you are in these groups, or pay to be taught a few or wait years to discover it. It's always a blend of opposing forces of various nature. It's probably a very general principle (society works like that too)
There is a difference between ‘unregulated’ and ‘poorly-regulated’. The more defensible position is that regulation never works as intended; it just benefits those that can hire the most lawyers, and state power is used against their weaker competitors.
I’d prefer Coinbase insider trading over Nancy Pelosi insider trading. So this isn’t the end of the world.
There’s no universe where there’s no insider trading and you’re asking me to switch the Coinbase situation for the Pelosi situation. And I prefer the Coinbase situation.
So I can accept the lesser of two evils and kick up a fuss when I don’t like it. After all, if switching to regulated finance is what you recommend, the cure is worse than the disease.
Coinbase would be frontrunning every trade you make. This would be a direct tangible loss to you. Think of it like a GME level fiasco but carried out every few weeks or so. Compared to that any insider trading Nancy does would be diffuse and unlikely to affect you personally.
Frontrunning gets you a worse price for your trade, so traders would naturally avoid exchanges which practice it in favor of others which offer a deal. There is no natural monopoly on crypto exchange services, though regulation does tend to raise artificial barriers to entry and promote centralization.
The "GME level fiasco" was only possible as a one-time event. You don't get situations like that on a recurring basis because the market adapts.
And yet Coinbase is one of the top exchanges in the world and routinely goes down for "unplanned maintenance" everytime a dip happens. Others are worse!
This is a fair point. I don't trade on Coinbase, but this is what happens at other exchanges too. It is rational to prefer the Nancy-style situation over the Coinbase situation.
Why is the SEC so slow to regulate cryptoassets? Literally everything that they combatted for stocks and traditional assets is now taking place in the crypto ecosystem.
The SEC stated a few years ago it doesn't regard cryptocurrencies as securities, so that's why they don't police it. (IMO they are clearly securities, but the SEC may not want to allocate resources to policing it.)
What many people don't realize is that insider trading of assets other than securities could still potentially be criminal fraud. However without the SEC, there is no specialized police force for addressing it.
The SECs core job is to protect investors and assure orderly markets. But it is not clear that buying a crypto asset IS an investment and one job of markets is to take money away from people who make dumb decisions (like buying a crypto "asset" only because Coinbase listed it). So stopping this doesn't actually fit their mandate any more than stopping people betting on sports or buying lottery tickets does.
And that's without getting into the other points people have listed:
* the SEC is toothless
* FX isn't a regulated market, you absolutely CAN use "insider" info to trade Euros, USD etc.
* its technically AND legally hard to prove insider trading in Crypto (and elsewhere)
* if they did, and Coinbase etc moved their operations to unregulated destinations would that actually make anyone safer?
Because SEC is something specific to US and crypto is international perhaps? I doubt SEC has anything to say in this regard when the trading happens to belong to a citizen of China, for example. And while I do know Coinbase is US firm, so is AMEX. Insider trading at AMEX in regard to foreign citizens isn't something they can do anything about it, can they?
The exchange is still physically registered in the US, similar to how non US citizens can place trades on NYSE etc. This cowboy market is madness and irresponsible.
But the crux is that those trades didn't occur on Coinbase, the assets hadn't even been listed yet. So it might very well be a case of a non-us citizen trading on a non-us exchange (or defi exchange). What can the SEC do in this case?
Yes it does, hence why I gave both of them as examples above. Just take a look at AMEX history in regards to insider trading and foreign citizens, then tell me what SEC did in those cases. Coinbase is just the latest kid in the finance sector, with just a fraction of toys AMEX has palying with for decades already.
Let me put it this way. Coinbase is just a sliver of what money AMEX is trading and is used as dust in eyes to blind people at real insider trading that happens in real money makers, which are AMEX and the rest of well established banks. Good luck SEC doing anything about it.
Going to play the "my uncle works at Nintendo" card here. My friend works for the SEC and has been in regular contact with me for crypto technical details. Securities is definitely working on rules, but it takes time for the rule makers to learn the technology and understand how to best regulate it.
Because they are a gutted, disempowered US-regulator. Wrecked by 4 years of Trump and countless other presidents before them.
Possibly there is also not the political will to ramp up the regulatory speed and power although I still have hope that Biden will be able to change that at least a bit.
What are you talking about? Read some history prior to the 4 years of the SEC.
Look at the suggested reforms the SEC was supposed to undertake AS IDENTIFIED BY CONGRESS. Then look at what actual reforms where implemented.
I'll help you out - almost none. The SEC has had a monopoly on financial market regulation since the 1930s and is just now becoming a victim to the cultural side affects of this monopoly. Shit, I actually think the SEC has done a phenomenal job regarding this and all other aspects of their job.
> The SEC has had a monopoly on financial market regulation since the 1930s
The Commodity Futures Trading Commission, Financial Industry Regulatory Authority, National Futures Association, Consumer Financial Protection Bureau, and many others would like a word.
If you're jaded by web3, just imagine how people back in the day must have viewed web2. Now take a look at the the top 10 companies listed on the S&P 500.
This is literally the scam of Web3. Just because you name something Web3 doesn't mean it's going to become the next big thing. There is no relationship between the success of Web2 and what will happen with Web3. Do you know how I know that? Because Web3 was coined by Sir Tim Berners Lee in 2006 as the semantic web and it didn't go anywhere.
"Oh well, you see web3 is like web2 + 1 and we know web1+1 was great so web2+1 must be even better". It's an idiots logic.
Feel free to call them whatever you want. They're just words meant to abstract a concept / zeitgeist.
If I were to define the two respectively to someone who had never encountered the terms before, web2 would be the centralization of the early internet ecosystem in order to increase scalability + capture/generate profit funnels with web3 being the corresponding deconstruction back towards decentralization and economic distribution thanks to work on improved consensus algorithms in trustless settings.
But you have no evidence of this. You're just saying "This thing I like will be big because I like it"
Web2 had a lot of stars align to become "the next big thing". (The newfound capacity for advertising, smartphones driving adoption, and the mechanisms for tracking and stealing user data). And none of those stars had to deal with privacy, decentralization, security, encryption, etc. All of these things that we have been trying to get consumers to value and consider for years; are actually antithetical to corporation's profit incentive. The tech industry has tried for a very long time. The concepts behind web3, such as decentralization, are not new. They have been tried, and created, and even somewhat adopted, for a VERY long time. Blockchain is just the new mechanism to try and attack this, but like most things on the internet, the problem is not a technical one: It's a social and economic one.
Until you talk about dismantling capitalism, I don't see web3 as being anything more than a natural cycle of niche internet interest combined with speculative market scams that entrap vulnerable populations into caring about it just long enough for them get burned on the latest crypto rugpull.
Sorry for the late reply, I really wish HN had a notification setting for replies.
I agree, web3 most likely means less profit to the corporation since the majority of economic value will accrue to the token / ecosystem instead. But it's innovate now or be outcompeted inevitably.
The main selling point of blockchains is that they make governance / economic distribution seamless. That's not dismantling capitalism. Much of what enables consensus in a blockchain requires similar incentive mechanisms to function, in my opinion.
Most people on HN here don't have a clue of what they are talking about, whether it is financial market regulation or cryptocurrency or blockchain technology.
What makes this topic difficult to approach is the degree of complex issues which surrounds it. We are looking at the intersection of technology innovation, the long-standing failure of institutional and market mechanisms, and combined with a bleak macroeconomic context.
Most people here should take a good reminder that they actually aren't experts in everything.
I checked the history of the user who left that comment; it shows recent posts about crypto, too. That's thirteen years of following the subject.
The claim in the parent post, roughly, is that the HN community is clueless about crypto and economics. In reality, HN had a large hand in popularizing crypto, and criticism here often is based on experience rather than ignorance.
Lobbying in the US is not the same as bribery. It's a system that has become corrupted, but corruption is not the system's main purpose.
Ostensibly, lobbyists exist to inform legislative staff about issues which they have no experience with, like an expert witness. You can't expect all ~550 legislators to have an in-depth understanding of every topic that they vote on.
The problem is that our legislative staffs started letting lobbyists come to them, instead of seeking out reliable impartial groups to work with. So when they need information about an upcoming vote, they end up soliciting advice from the wealthiest groups in those industries which the vote would impact.
It's an insidious form of regulatory capture. It might even be worse than bribery, because ordinary citizens cannot participate.
We don't just have a system of legalized bribery, we have a system of mandatory bribery. Campaign finance says: haven't collected your bribe quota from well-heeled causes? No public office for you.
That's absurd. Insider trading makes markets more efficient as the information enters the market earlier, allowing them to reach the correct price sooner.
There's no insider trading laws in commodities or real estate, have those markets collapsed?
Insider trading prevents information from being available to all parties by definition. That argument essentially essentially means that a certain amount of people should be allowed be defrauded to find the correct market price.
Real estate is an especially bad example too because when selling a house you have to disclose any information about the property that may affect it's future value or risk legal action - but still real estate fraud continues.
Insider trading delegitimizes markets. It’s illegal for all regulated US commodities trading. It’s called front-running. It in theory would make the market more efficient for that one minute interval where a local trader eg makes trades ahead of a larger institutional order of an honest participant. But by screwing over the honest participant it would misrepresent the true price of the asset. It’s definitely illegal by the CFTC and any exchange that trades anything regulated.
That doesn’t stop people from trying to get away with it under the radar tho (small front-running order ahead of large institutional order). The innovation in crypto is frontrunning at the transaction time is more difficult (trades are encrypted, not made in some open outcry pit).
However this doesn’t stop exchanges from screwing over customers by creating demand and someone inside trading their pre-listed asset.
To prevent that programmatically you’d need a crypto protocol for establishing new listings where everyone is aware of new listings in advance and agrees via some fair consensus.
> Insider trading makes markets more efficient as the information enters the market earlier, allowing them to reach the correct price sooner.
How exactly do you think this happens? If I know that a stock is about to rise significantly, I can just buy it at the current price all the way up to the day the information becomes public, and I will not have changed its price at all, but will profit massively off of my inside information.
The market will not reach the correct price until material information becomes public.
Marginally, but nowhere near to the extent that the price will change when the insider infortmation becomes public (unless I'm doing something crazy, like buying all available stock at any price below what I think the price will be).
Because you don't want others to notice what you're doing, obviously. If the CEO of X is buying massive amounts of X stock, people will start assuming they have inside information, and the price will go up. If the CEO of X bought a few shares at market price every day, that will be less likely to alert anyone, and they will be able to continue buying at very low prices.
Insider trading makes someone richer at the expense of others, it's a form of fraud. I don't think it necessarily affects the market significantly otherwise, except by introducing more irrationality and lack of trust, if not regulated against.
How is insider trading a form of fraud? Insider trading can certainly be fraud, but you’ll have to further explain why this would be an inherent property of insider trading.
>Insider trading makes someone richer at the expense of others
This just shows that your understanding of markets is at elementary school level.
How exactly does insider trading cost anybody else money? It simply allows for more accurate pricing.
If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.
It is a type of fraud because the insider is selling you a stock at a price they know is wrong (or buying it from you). They are hiding from you information that they know would affect your decision to trade.
Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud?
> If I own shares of company $x and an insider sells their shares of $x causing the stock to plummet, I do not lose anything. I still own those stocks, they’re just valued more accurately.
Again, you're assuming that the insider would trade at the new price. This is a completely unfounded assumption.
If I'm an insider and know that a company whose shares are currently worth 100$ will announce 0 revenue two months from now, I will sell my shares at 100$ to someone who still believes the company is doing ok. Depending on how big of an insider I am, I will have to do this carefully so as to keep up the ruse as long as possible - hopefully all the way to the announcement, when the stocks will plummet to 10$, and all the dupes who I got to pay me 100$ will be left holding the bag.
Now of course, if all insiders start trading away their stock, the price will start dropping, so maybe they won't be able to sell all their shares at 100$, maybe the price will settle at 90$ or 80$ or even lower. But if the market has been told the company is doing well in terms of sales (even though the insiders know its not) they will not allow the price to drop as low as it should.
> It is a type of fraud because the insider is selling you a stock at a price they know is wrong (or buying it from you). They are hiding from you information that they know would affect your decision to trade
So it would also be fraud if I sold a stock because I happened to overhear the executives of a company in a restaurant discussing some Very Bad thing that was about to happen to the company?
In reality this simply isn’t fraud. The stock is just worth different amounts to different people with different knowledge.
> Further, imagine that I as a CEO (or more realistically, executive team) buy a short contract on my own company's shares (through intermediaries, so people don't find out I did it), and then intentionally tank the company to force the stock price to go down at a later date. Wouldn't this be extremely similar to insurance fraud
This is obviously illegal regardless of the existence of “insider trading”.
Limited available capital? You can only borrow so much money. Also, you can't know for certain how much the stock will move after the information becomes public.
>There's no insider trading laws in commodities or real estate, have those markets collapsed?
I didn't check, but is this really true? If a mining company executive knows that for whatever reason they will see a 10% drop in yield next quarter, but it's not public knowledge, they can buy futures, no problem? All the execs can get together if there's something going on and invest on that info as long as they're investing in the commodity, not stock?
This is a hilariously misinformed take, indicative of reading news in a bubble. The cryptosphere benefits when folks like you don your tin foil hats.
You do realize the amount of scrutiny is far greater, affects all individuals above a certain pay grade at publicly traded companies, and that regulation continuously evolves? Protections against wash and insider trades are an important consumer protection but crypto advocates would rather you believe the current system doesn’t offer those affordances than admit deficiencies in their blockchain based ecosystems
Insider trading laws, to the extent they work, make the market less efficient because they delay the entry of information into the market. The majority of markets outside of equities, like real estate, don't have insider trading laws yet have managed perfectly fine.
The real estate market requires sellers to disclose property risks to potential sellers, which is an alternative to insider trading laws (one that would scale poorly to stock trading). Similarly, commodities are often sold under a warranty, with any hidden flaws being the responsibility of the seller - another solution to the problem of unequal information.
