Inaccurate information has the potential to destroy people’s investments, and traders are generally keen on scrutinizing information or news that may affect their portfolio. A darker reality presents itself when private information regarding market conditions is used in an unfair manner by the few people privy to it, while the general public and other investors are left bearing the burden of these cheaters.

Many of us have heard of insider trading and corruption in financial markets. These issues are especially important in today’s financial world since both institutional markets and cryptocurrencies have become much more accessible to retail level investors, who can only hope others are playing the market fairly.

Cryptocurrency trading is far less regulated than other financial markets due to the decentralized structure, the anonymity associated with digital coins, and the short timespan in which they’ve existed. For institutional investors, there is doubt regarding the safety of cryptocurrencies as investments, as the absence of regulation limits their perceived integrity. This fear of unfair behavior is heightened by the thought of people with access to private information since there is often no recourse available if investments go sour. Typically this is called insider trading. However, existing trade markets that are subjected to regulation aren’t without similar risks.

Some countries don’t have laws preventing insider trading, but many nations have developed regulatory bodies to reduce fraud in the marketplace. Insider trading can be very difficult to identify especially at the retail-investment level when no broker licenses or other formal registration is required. Even in places with protections, these acts can go temporarily unnoticed until the damage is done.

This happened in Australia when a national bank employee continuously received private financial information from a friend working in the ABS (Australian Bureau of Statistics) and accrued $7 million over one year. This man was able to use unreleased financial data to make profitable trades before the rest of the market had a chance to react. People acting unethically in the market can avoid being caught if they are adept at spanning their profits over time, camouflaging themselves from regulators.

Speculation is another form of unethical behavior that in turn affects prices in the crypto market. Cryptocurrencies’ volatility problems are partially caused by this speculation, and digital coins without mechanisms to limit volatility can have their value fluctuate at extreme levels due to information sharing. Since the US and some other countries are now regulating cryptocurrency investment, we are beginning to see the outline of how governments will prevent unethical behavior in these markets. In the meantime, many countries don’t regulate cryptocurrencies and most platforms retain anonymity for their users.

This is one reason that some nations are hesitant to encourage cryptocurrency investment and incorporate cryptocurrencies into formal financial markets.

However, the enormous growth and popularity of the cryptocurrency market have motivated multiple governments to explore, create, implement, and regulate them. The hurdles to overcome insider trading are large.

Coinbase, one of the largest cryptocurrency exchanges, launched an internal investigation into the launch of Bitcoin Cash on their website. Insider trading allegations arose because shortly before offering Bitcoin Cash on their exchange website, the market price of Bitcoin Cash rapidly increased without any known market indicators. This suggested that employees acted on private knowledge of the Bitcoin Cash launch on Coinbase and began investing in the currency ahead of the rest of the market, expecting that the price would increase after news of its release.

Coinbase determined that there was no wrongdoing by their employees, but Coinbase customers have filed a class action lawsuit against the exchange that is still active and in its early proceedings. Events like this are exactly what makes institutional investors uncomfortable with cryptocurrencies.

The CFTC (Commodity Futures Trading Commission) would be the US regulatory body in charge of monitoring insider trading in cryptocurrencies. So far there has been no sign that they intend to regulate despite having authority. Their ability to prosecute people is greatly decreased by the fact that trading information must have been accessed by a breach of duty, or through fraud and deception to constitute insider trading.

There are still many unaddressed aspects of crypto trading that governments haven’t regulated yet, just look at legal grey areas regarding ICO’s, exchanges, and tax implications. It’s expected that increased supervision of exchanges is the first and largest step in convincing institutional investors that cryptocurrencies are safe enough to be dealt with, and many people expect dense legislation measures in the future.