COINBASE says it will investigate potential insider trading among its employees in the wake of a sharp price increase in bitcoin cash hours before the digital currency was added to the platform.

On Tuesday, the world’s largest cryptocurrency exchange sent the price of bitcoin into free fall with the announcement it was adding support for the rival currency.

In a blog post on Tuesday, Coinbase said its more than 30 million customers would immediately be able to buy, sell, send and receive bitcoin cash.

Bitcoin cash is an offshoot or “fork” of the main bitcoin line, created in August this year, designed to allow for faster and cheaper transactions.

Following the news, bitcoin’s price plummeted by 15 per cent, from a high of around $US18,400 to bottom out at $US15,580, according to research site CoinDesk. By early afternoon on Wednesday it was trading at around $US16,170.

Meanwhile, the price of bitcoin cash skyrocketed, nearly doubling from around $US1850 on Tuesday to $US3500 on Wednesday. Coinbase was forced to halt trading in bitcoin cash as the price temporarily spiked to around $US8000, leading to confusion as to whether it was a pricing glitch.

Amid accusations of insider trading, Coinbase co-founder and chief executive Brian Armstrong said the company took the issue very seriously. “It appears the price of bitcoin cash on other exchanges increased in the hours before our announcement,” he wrote in a blog post on Wednesday.

“While digital currency prices fluctuate quite a lot and we have no indication of any wrongdoing at this time, I wanted to share a few thoughts with our customers.

“We’ve had a trading policy in place for some time at Coinbase. The policy prohibits employees and contractors from trading on ‘material non-public information’, such as when a new asset will be added to our platform.

“In addition to trading restrictions, it prohibits communication of material non-public information outside the company. This includes to friends and family.

“Our launch of bitcoin cash today is no exception to this. All Coinbase employees and contractors were explicitly prohibited from trading bitcoin cash and from disclosing our launch plans over a month ago.

“This was communicated multiple times via multiple channels to employees. For instance, I made sure it was emphasised at our Friday Q&A sessions, and in emails sent to all employees.

“I view it as a key part of my job to set the tone from the top about how we all must act to ensure success. The trading restriction, which applies to all personal trading activity on any platform, remains in effect now.

“I take the confidentiality of material non-public information very seriously as CEO. 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.

“Our goal is to make Coinbase the most trusted and easiest to use digital currency exchange. We will only accomplish this goal by ensuring that we (the employees and contractors at Coinbase) all hold ourselves to a high standard of conduct.”

On Tuesday, Coinbase said customers who held bitcoin at the time of the fork on 1 August 2017 had been automatically credited with the appropriate amount of bitcoin cash for their accounts.

“Sends and receives are available immediately,” the company said. “Buys and sells will be available to all customers once there is sufficient liquidity on GDAX. We anticipate that this will take a few hours.

“We have been monitoring the bitcoin cash network over the last few months and have decided to enable full support including the ability to buy, sell, send and receive. Factors we considered include developer and community support, security, stability, market price and trading volume.

“Coinbase maintains a strict trading policy and internal guidelines for employees. Coinbase employees have been prohibited from trading in bitcoin cash for several weeks.”

It comes after the co-founder of the Bitcoin.com website and bitcoin cash backer Emil Oldenburg announced he had sold his entire bitcoin stash, describing the original bitcoin as “virtually unusable” as a currency due to high fees and long wait times.

“When I sold my bitcoin I had to pay $US50 and wait 12 hours for the transaction to go through because of this,” Mr Oldenburg told Swedish website Breakit. “It’s completely unreasonable.”

Mr Oldenburg’s business partner and chief executive of Bitcoin.com, Roger Ver, is one of the key figures behind the offshoot currency.

Meanwhile, the US Securities and Exchange Commission has temporarily suspended trading in a popular bitcoin-related stock whose price has soared by more than 5600 per cent year to reach a market valuation of $US11.3 billion, citing concerns about market manipulation.

Australian James Gilbert, the president and largest shareholder of blockchain technology specialist The Crypto Company, has seen his stake in the company balloon to $US1 billion, The Australian Financial Review reported.

In a statement, the SEC said trading was suspended “because of concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock”.

“Questions have also arisen concerning potentially manipulative transactions in the company’s stock in November 2017,” the SEC said. “The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed company.”

frank.chung@news.com.au