SEC to investigate insider trading on crypto exchanges

The United States Securities and Exchange Commission (SEC) has reportedly launched a probe to discover how crypto exchanges are working to prevent insider trading.

FOX Business reported that the commission had sent a letter to a major crypto exchange requesting information about how the platform protects users from insider trading. The source believes the same letter has been sent to multiple exchanges.

It is not clear which exchange or exchanges have received the request, but the news outlet said Coinbase, Binance, FTX, and Crypto.com all declined to comment. The SEC also declined to confirm the probe.

The SEC could be seeking out leads to litigate against an exchange’s potential legal violations via the enforcement division, or it could be a routine compliance check through the Office of Compliance Inspection and Examinations.

Allegations of insider trading at the largest nonfungible token (NFT) marketplace, OpenSea, have caught the attention of the SEC. Cointelegraph reported on 3 June 2022 that the commission could ultimately label NFTs as securities after charges of insider trading to OpenSea’s officials.

The proposed Digital Commodity Exchange Act of 2022 would see the SEC have its presumed jurisdiction over crypto exchanges rescinded. If it passes, the bill will give the Commodity Futures Trading Commission (CFTC) authority over crypto exchanges and stablecoin providers.

Current market conditions and ongoing scandals in the crypto industry may have catalysed the SEC’s decision to start the inquiry. Early in May 2022, the Terra ecosystem collapsed after the TerraUSD Classic (USTC) stablecoin depegged and the Luna Classic (LUNC) cryptocurrency plunged 99.9% in value.

More recently, the decentralized finance (DeFi) staking and lending platform Celsius has come under fire for freezing user withdrawals as rumors swirl around its potential insolvency amid huge transfers of crypto into FTX exchange.

The total crypto market cap has dropped below USD 1 trillion for the first time since February 2021. It is currently down 1.1% over the past 24 hours to USD 977 billion, according to CoinGecko.