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Blockchain Semantics Blog Here’s Why You Will Never Make Money Doing Crypto

Here’s Why You Will Never Make Money Doing Crypto

By Abhishek Singh | July 21, 2018, 6:35 a.m. GMT

Here’s a list of things you always knew.

  • The sun rises in the east.
  • Any such east starts with the fact that the sun rises in the list.
  • #2 has ‘list’ and ‘east’ wrongly swapped.
  • All financial markets are beset by insider trading, and crypto is no exception.

One who places trade basis private and confidential information known to him is called a Raj Rajaratnam. Or an insider trader.

Insider traders have access to confidential information that can cause a fluctuation in the asset price if the information were released. Insider traders use this information to place an order accordingly, to maximize their returns. (And minimize yours. Markets are a zero-sum game.)

In India, Securities and Exchange Board of India (SEBI) introduced laws against to counter this in 1992. SEC in the US took cognizance of this offense a few days before India, back in 1934. It was a reaction to the horrendous stock market crash of 1929. Now, you do know that crypto is not very well regulated. This makes it a breeding ground for all sorts of insider traders.

In a fair world, profits and losses would be made per your readings and predictions of the market. However, in case of insider trading, the trader has confidential information that he exploits to place a buy order if the news is positive. Once such news is made public, Average Joes like you and me in a bid to gain from the price increase, will place our own but orders thus driving the price up and thereby handing over our money to the insider trader in neatly folded crisp currency notes. 

One such juicy example is Bitcoin Cash’s listing on Coinbase. As you can guess, for any crypto to get listed on the juggernaut that Coinbase is, is a hugely positive outcome and its prices would surge as a result thereof. Now, if you knew Bitcoin Cash, say, was going to get listed on Coinbase soon, what would you do? Never mind, don’t answer that, it’s obvious.

Some people did. Yes, some people knew Bitcoin Cash was going to get listed on Coinbase before Coinbase made it public. Who could these people be, think think? People related to or people at Coinbase, perhaps- that’s what the grapevines say, anyway. See below.

In August 2017, Coinbase announced that it would support Bitcoin fork Bitcoin Cash (BCH). The exchange then said that the buying and selling of BCH will start from Jan 1st 2018. However, on  Dec 19th, Coinbase announced all of a sudden that it has started BCH trading without a prior announcement.

Did some people know right before Dec 19th that what happened was going to happen? Look at the tweet below and guess for yourself.

Coinbase was accused of tipping off some investors before the announcement. A lawsuit was filed against Coinbase, but the outcome is still pending.

Another case of insider trading happened in South Korea, where wait for it... Korean FSS (Financial Supervisory Service) officials were accused of insider trading. The officials sold their cryptocurrency before Korea introduced its hard-handed regulation on cryptocurrency. The official was caught. But a zealous colleague of the accused official managed to insert his foot in his own mouth pretty deep when he defended the accused by saying there was technically “no code of ethics or conduct for virtual currencies and therefore, difficult to issue any punishment.” 

This is the first of a series of posts in which we will cover why you will never make money doing crypto. Was that blunt? Oh, sorry.

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