Coinbase investigating insider trading in bitcoins

The trading platform Coinbase is investigating potential insider trading involving the digital currency Bitcoin Cash.

The company is looking into whether an employee profited off inside information Tuesday when the platform saw a dramatic rise in the value of Bitcoin Cash.

Coinbase, the largest cryptocurrency trading platform, had just allowed live trading on Bitcoin Cash for the first time earlier that evening. The platform suspended trading of Bitcoin Cash after its value soared from $3,000 a coin to more than $8,500 a coin within an hour.

{mosads}In a blog post, the GDAX trading platform — owned by Coinbase — said it was suspending Bitcoin Cash trading because of “significant volatility” until Wednesday morning.

In a follow up post on Wednesday, Coinbase CEO Brian Armstrong acknowledged that the price of Bitcoin Cash had increased before the announcement that the platform would allow trading. All Coinbase employees, including contractors, were made aware of the confidential move last month and were barred from trading on the information.

“Given the price increase in the hours leading up to the announcement, we will be conducting an investigation into this matter,” Armstrong wrote. “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.”

Coinbase is the largest and most-accessed digital currency trading platform in the world. Other cryptocurrency exchanges have higher barriers to entry and lack many of the easy-to-use features on Coinbase, making access to the platform valuable to currencies.

Knowing when Coinbase would begin trading in Bitcoin Cash, which was expected to spike in value, would give a trader an advantage.

Trading cryptocurrency based on insider information would violate Coinbase’s own internal policies, but its unclear what, if any, laws were broken.

“Insider trading laws mostly have to do with securities trading, but bitcoin is currently treated as a commodity,” said Peter Van Valkenburgh, research director at Coin Center, a cryptocurrency research and advocacy organization based in Washington, D.C.

“That doesn’t mean that this isn’t something that could violate laws however. There’s laws against basic fraud and also market manipulation, and the [U.S. Commodity Futures Trading Commission] has jurisdiction over commodities spot markets if there is evidence of manipulation,” Valkenburgh continued.

Bitcoin Cash is a “forked” version — or alternative version — of bitcoin, the most traded and most prominent cryptocurrency. Bitcoin Cash is currently the third largest cryptocurrency in terms of market capitalization, sitting at more than $29 billion compared to bitcoin’s more than $294 billion.

Bitcoin Cash is currently trading at roughly $4,300 on Coinbase.