Bitcoin Cash Disrupted the Market After Being Listed on Coinbase; Also, Insider Trading Investigation By Coinbase

Bitcoin Cash was listed on Coinbase/GDAX on Dec. 19. There were some questionable price increases in the hours leading up to the listing. Coinbase is investigating insider trading.[1][2][3]

Here is what Brian Armstrong (CEO of Coinbase) had to say about the matter:

“Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter,” he said. “If we find evidence of any employee or contractor violating our policies — directly or indirectly — I will not hesitate to terminate the employee immediately and take appropriate legal action.”

– Armstrong on Coinbase’s Blog. See: Our employee trading policy at Coinbase.

Further, it is worth noting, Bitcoin’s price simultaneously began to go down as Bitcoin Cash went up. This put downward pressure on the entire market.

Given these events, trading of Bitcoin Cash and of other cryptocurrencies on Coinbase/GDAX has been halted at points throughout the day (so expect downtime on Coinbase/GDAX on Dec. 20).

Those are the facts and the news.

To convey the rest of the events I have to toss in a little human interest story and drama and recant a few theories. Thus, here goes some op-ed style reporting:


To fully grasp every aspect of this story (and thus to make sense out of the current market and the allegations) we have to discuss the events of Dec. 19 – Dec. 20 and some history of Bitcoin and Bitcoin Cash.

First off, the events of Dec. 19:

On Dec. 19 Bitcoin Cash rose steadily in price on the major exchanges (like Bittrex) in the hours leading up to Bitcoin Cash being listed on Coinbase/GDAX.

At the time this appeared to be a classic “pump” (where a price inflates rapidly due to buyers constantly skipping the order books and buying through sell orders).

In this same time Bitcoin began to be “dumped” (dumping is the same thing as pumping, but consists of people selling through buy orders on the books to push the price down).

People were trying to figure out exactly why this was all happening, as nothing had fundamentally changed about Bitcoin or Bitcoin Cash. People speculated that Bitcoin Cash backers wanted to ensure the price of Bitcoin Cash was at $3k USD so it wouldn’t be dumped when Coinbase released Bitcoin Cash to those who held Bitcoin on Coinbase/GDAX during the August fork (those funds have long be slated to be released January 1st).

This theory made some sense at the time, but in retrospect it hardly explains the events and their timing.

What does potentially explain it is what happened next.

Hours after Bitcoin Cash had started “pumping” Coinbase users began getting notifications telling them Bitcoin Cash trading would begin soon when they logged into Coinbase.

That helped to make all the events leading up to that make sense… we’ll mostly. It actually still left one answered question:

“How the heck did someone know that Bitcoin Cash would be listed for sure, and further, how did they know exactly when it would happen?… How was someone(s) with enough capital to move markets able to time the pump of Bitcoin Cash and dump of Bitcoin so well?”

There isn’t a ton of possible answers beyond “crazy happenstance” (and this is a real possibility, after-all Charlie Lee happened to sell all his Litecoin the same day) and “someone at Coinbase was doing insider trading or leaked the info.” Leaking info or more broadly, insider trading, is clearly against Coinbase policy, hence the rare blog post and investigation announcement from Armstrong.

Now while Coinbase is currently investigating insider trading (and has at points in the hours after listed Bitcoin Cash paused trading more than once), there are other potential answers here beyond “insider trading.”

One example of another plausible theory that explains some events, but not the timing of them is this: People around the internet had noticed that a Bitcoin Cash wallet was added to GDAX’s API (that is true).

This clued people in to the  idea that Bitcoin Cash might be listed. In fact it was clear that it would either be listed or that Coinbase was prepping for the distribution of Bitcoin Cash on Jan. 1 which it had long announced.

Thus, it is rational that people pumped Bitcoin Cash and dumped Bitcoin based on the aforementioned info alone… and that they just happened to pick a date to do this that was the same day that Coinbase was listing Bitcoin Cash.

The problem is, it is hard to believe that the timing of the Bitcoin Cash pump and Bitcoin Dump was pure coincidence.

Thus, the theory of insider trading or a leak is much more plausible.

The problem here is that these events didn’t just give Bitcoin Cash holders some extra coin, they actually caused the entire crypto market to drop. This meant BTC dropped. This meant that futures contracts got thrown out of whack. This means that stop orders closed. Etc.

In other words, this one event had a ripple effect with wide spread negative consequences for many (but certainly not all; for example those who held Dash, Monero, or Bitcoin Cash, or those who were looking for a lower entry point on BTC or top alts did well).

The bottom line here is, how the events happened aside, Bitcoin Cash enjoyed 60% – 80%+ gains while the other coins on Coinbase all lost value (as did most, but not all, of the alt market).

Now we could argue that this is fine and dandy, as the other coins effectively went on sale and all are arguably destined to do well moving forward. We could also argue this is price fluctuations as usual in the crypto space. Or, we could argue that “this is the free market, things like this happen.”

However, we could also argue that Bitcoin Cash is once again bringing a certain degree of darkness that is uncommon to other top alts to the mainstream coins once again.

After-all, this is not the first major event in which Bitcoin Cash backers have been accused of market manipulation at the expense of Bitcoin and alt holders.

What I mean is this:

Back in October Bitcoin Cash backers were accused of running a pump and dump scheme where they dumped Bitcoin and pumped Bitcoin Cash from $300 to $2,500. This was paired with social media posts by many, including a notable backer Roger Ver, that exclaimed “Bitcoin is dead, Bitcoin Cash is the real Bitcoin.”

This dropped Bitcoin so hard and pumped Bitcoin Cash so quick that it was even being described as a “War Between Bitcoin and Bitcoin Cash” (complete with fancy names like “operation dragon slayer”). It was intense (but ultimately presented an amazing buying opportunity with Bitcoin).

Still, it darkened the Bitcoin Cash doorstep a bit, and makes the idea that manipulation is once again a problem with Bitcoin Cash more plausible (which is unfortunate because as “essentially a Bitcoin clone” its hard to knock based on code alone).

Of course, the events of the first Bitcoins’ war played out how we all remember. After much panic and bravado, Bitcoin Cash’s price dropped back down and Bitcoin went on to nearly quadruple in price (making anyone who traded $5.5k Bitcoin for $2.5k Bitcoin Cash regret they day they listed to the FUD… in the short term at least).

Now we reach another needlessly dramatic moment in Bitcoin Cash’s short history where it once again [potentially] has been pumped at the expense of the rest of the market.

Hopefully Coinbase’s investigation will lead us to some answers. Hopefully those answers won’t cast yet another shadow on Bitcoin Cash. In the meantime the last set of events and the events from October have together left a bad taste in a lot of people’s mouths about Bitcoin Cash.

Still, a newcomer coming to Coinbase over the holidays won’t necessarily know about any of this.

They will see Bitcoin Cash on the rise and the rest of the coins falling. Is it not human to read this as a sign that Bitcoin Cash is good and the others, not so much?

And that is the problem. The conspiracy theory is… that this was the point. That this was why Bitcoin Cash was pumped and Bitcoin dumped in this cycle.

Ultimately crypto is volatile and it makes sense that a new coin being listed on one of the market leading exchanges would be a disrupting event.

There is nothing inherently bad about a new coin giving the existing coins a run for their money.

There is also nothing inherently wrong with a fork trying to do it better and vying for market dominance.

Here the questions aren’t focused on those natural market mechanics and healthy competition though, they are focused on the fact that the disrupting event began hours before anyone was supposed to know about it.

They are focused on the fact that it really seemed from the order books that someone(s) was dumping Bitcoin and pumping Bitcoin Cash in an effort to manipulate the market. Thus, if that is true, this would mark the second time in two months an event like this has occurred.

Of course, if you read through the strategy that contains “operation dragon slayer,” then you shouldn’t be surprised. As this strategy has been written down on a bullet pointed list for months now.

Anyway, putting all that aside and chalking it up to crypto drama, the only question left is really “who knew Bitcoin Cash was going to be listed, and how did they know it?”

We can expect some grey-hat tactics in crypto, the market is still young. But we don’t expect black-hat tactics from within Coinbase… and that is why they are getting out in front of the problem and putting their foot down.

Hopefully at some point we can put all this behind us so we can finally get to the part where we can analyze BCH on its own merits without having to tell the story of dragon slayers and theories of manipulation. You know, like with literally every other top coin where you get an exciting product without crazy drama that plays out at the expense of nearly everyone else.

One day crypto might solve world hunger… but in moments, and on bad days, it seems to only fill very specific bellies.

Get $10 in free Bitcoin when you sign up at Coinbase and buy or sell $100 in Cryptocurrency
Citations

  1. Our employee trading policy at Coinbase
  2. CRYPTO INSIDER: Bitcoin cash soars while Coinbase investigates insider trading
  3. Coinbase is investigating insider trading after it enables — and then disables — bitcoin cash trading


"Bitcoin Cash Listed On Coinbase/GDAX; Insider Trading Investigated By Coinbase" contains information about the following Cryptocurrencies:

Bitcoin Cash (BCH)

What do you think?

Enrico Pieroni on

Well done and clear article. Thanks Thomas. I also had the impression that, looking at the rising and falling local time movements of both BTC and BCH, they were perfectly synchronized and in opposite phase, thus I speculated the pumping/dumping scheme could have been orchestrated flushing coins simply between the two markets … thus requiring half the money. Enrico

Thomas DeMichele
Thomas DeMichele on

Not to hate on Ver or Bitcoin Cash (I try to like them, but do get a little weary of the FUD and attitude, which I try to keep out of my writting), but here are my thoughts on this:

Ver essentially, but indirectly, admitted that manipulation was happening in terms of BCH and implied “who cares, free market.” //twitter.com/rogerkver/status/943635857126445056

NOTE: Ver’s tweet is essentially a response to Coinbase/Armstrong //twitter.com/brian_armstrong/status/943360928845791232

I guess Ver’s stance is a valid stance in general. That is, so what if information was leaked and a Bitcoin dump and Bitcoin Cash pump was orchestrated, it is a free market. Insider trading shouldn’t be illegal.

However, I’m not sure how valid that stance is in terms of Coinbase’s ecosystem. Coinbase is a U.S. company with its own policies, not the free market of the world.

Also, while some crypto users are hardcore libertarians, not all are. The market gets to speak with our dollars (er, um, also cryptos in this case). That is what creates demand. And when a coin isn’t actively pumped and kept afloat, that demand of the general public is what keeps a coin at its price point.

Ver and Cash are very polarizing, and I’m not sure how that is going to result in Bitcoin Cash becoming the dominate Bitcoin in the market (attracting half the market, but leaving the other half unwilling to invest in your product… how does that achieve widespread adoption?)

The bottom line is, opinions aside, I think Ver is missing the point. Regulations against market manipulation aren’t something that have to come from governments, they can simply come from the exchanges choosing to allow the trading of a given coin. Meanwhile, no single factor like speed or transaction fees is going to cause a full on switch. Lastly, going on CNBC and spreading FUD on social media seems to at best lift BCH for a moment and drop BTC for a moment. After that dies down, things tend to bounce back to how they were.

That price fluctuation leaves many people salty, and the FUD leaves people salty, again this is polarizing. Not everyone has the vendetta against Core and Blockstream that Ver does. Many people just think Bitcoin = neat. I don’t see how chaos and manipulation is going to grow the market cap of crypto?

Rather, I think if crypto every becomes fully mainstream it will be because of platforms like Coinbase.

Insider trading is against coinbase policy, since the subject is coinbase, that is enough. Doesn’t have to be illegal.

In other words, we will see what happens, but I don’t think there is a ton to be gained from the constant divisiveness of Ver.

Then there is the matter of Bitcoin Gold, Bitcoin Dimond, Super Bitcoin, etc… the reality is some of those are on-paper faster and more profitable to mine (and importantly less centralized). That is the other dangerous game Ver is playing. If he gets everyone to lose faith in BTC, it could drive the market to another fork (perhaps one that forks after he gets rid of his Bitcoin, thus creating a space in which he doesn’t even own the fork that becomes dominate in the future).

Really interesting stuff to think about, I think today’s bear market shows us why manipulation on a grand scale is generally not great for the many… even if there is no big brother around to tell you what your moral compass should have already told you in the first place.