Study: Insider trading occurs in 10% to 25% of cryptocurrency listings

According to a recent study conducted by the University of Technology Sydney, researchers estimated that insider trading occurs in 10% to 25% of cryptocurrency listings.

In deriving the conclusion, researchers first sampled 146 token listing announcements on cryptocurrency exchange Coinbase between September 25, 2018, to May 1, 2022. Afterwards, researchers examined the price movements of the sampled tokens in the time interval of 300 hours before Coinbase listing announcements up until 100 hours after the announcement, on various exchanges.

The hypothesis was that if insider trading was involved, tokens that are also available to trade on decentralized exchanges, or DEXs, before the listing would see abnormal returns compared to those not listed on DEXs. Researchers claim that such levels of abnormal returns were observed to statistical significance in 10% to 25% of tokens studied, and that price patterns on DEXs immediately before the Coinbase listings were similar to "run-ups" witnessed in the known cases of stock insider trading.

Additionally, a small subset of wallet addresses on the aforementioned DEXs was suspected of strong accumulation and then quick disposition of tokens after the Coinbase listing went live. The study in the draft status has not been peer-reviewed.

Such scopes of studies are normally limited by their ability to prove causation on top of correlation, or that the abnormal returns in the study can be definitely attributed to traders with non-public information accumulating ahead of time. Though coincidently, around the same time the paper was submitted, the U.S. Department of Justice has charged a former Coinbase executive with insider trading. He has since pled not guilty.