Leading cryptocurrency exchange Coinbase has launched an investigation to determine if its employees took advantage of insider knowledge to profit from the launch of bitcoin cash (BCH).
Coinbase launched bitcoin cash on its platform on Tuesday. Coinbase CEO Brian Armstrong says the staff were warned not to leak information of the launch to friends or family and had been requested to not trade in the currency themselves. “We’ve had a trading policy in place for some time at Coinbase. The policy prohibits employees and contractors from trading on 'material nonpublic information', such as when a new asset will be added to our platform. In addition to trading restrictions, it prohibits communication of material nonpublic information outside the company. This includes to friends and family,” Armstrong said. Trading of the currency was suspended after market observers posted allegations against Coinbase staff on social media. “Given the price increase in the hours leading up the announcement, we will be conducting an investigation into this matter. 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,” the CEO wrote on blog site Medium. The accusations of insider trading weren’t the only trouble for the website. Trading was sketchy from the start and was frozen just four minutes after it began.
Bitcoin cash only in use since August
Bitcoin cash was ‘born’ in August this year when bitcoin forked. The currency is very similar to its predecessor bitcoin but bitcoin cash has a greater capacity to process transactions. The initial fork was controversial as holders of bitcoin also received the equivalent amount in bitcoin cash. Many exchanges, including Coinbase, did not support the newly formed currency, but have jumped on board now that it has proven itself.
Bitcoin cash has significantly increased in value since its launch and is proving popular with first-time cryptocurrency investors due to the ease of purchasing it. The currency runs on much larger blocks than bitcoin which can, therefore, process far more transactions at any given time.
"Many investors see Bitcoin Cash as a hedge against Bitcoin in their portfolios."
Chris Keshian, co-founder of the Apex Token Fund, a tokenized crypto fund-of-funds, says, “Bitcoin's slow transaction times and high fees make it untenable as a daily currency. BCC does not have these same issues, and has been touted recently in the news under the banner of quick, cheap peer to peer payments." He notes bitcoin cash is also popular among investors as a way of hedging their options when investing in bitcoin. "Many investors see Bitcoin Cash as a hedge against Bitcoin in their portfolios," he says. "So as their Bitcoin holdings increase, they move into BCC positions to appropriately hedge their risk." Bitcoin cash is expected to experience a price rise before trading resumes on Coinbase GDAX trading platform. It is unclear how long Coinbase investigation will take before any answers are found but this is yet another hard lesson learned for an industry that is still finding its feet.