Insider trading in cryptocurrency markets

Abstract

We find evidence of systematic insider trading in cryptocurrency markets, where individuals use private information to buy coins prior to exchange listing announcements. Leveraging blockchain data, we identify the specific transactions and wallets (individuals) that consistently trade before announcements, ruling out alternative explanations. We estimate that insider trading occurs in 28-48% of cryptocurrency listings, yielding at least $30 million in trading profits. Unlike insider trading in stocks, scrutiny by authorities does not significantly reduce the level of insider trading, but pushes it underground via cryptocurrency concealment methods. These findings highlight the substantial challenges in policing cryptocurrency markets.

Keywords: Cryptocurrency, decentralized exchange, insider trading, listing announcement, concealment strategies JEL classification: G14

JEL Classification: G14, G18