On Wednesday and Thursday, Bitcoin (CRYPTO: BTC) tumbled nearly 14% (from $7,380 to $6,410) on news that Goldman Sachs would be pulling out of plans to set up a cryptocurrency trading desk. However, an artificial intelligence (AI) software firm finds suspicious activity that may (or may not) signal market manipulation or insider trading.
The questionable trade involves a 10,000 BTC ($74 million USD) short-sell position right before the Wall Street bank’s announcement, which led to sharp decline in crypto prices. CCN.com first reported the BTC dump after interviewing data scientists from RoninAI, an AI analytics firm.
[UPDATE: On Thursday at TechCrunch event in San Francisco, Goldman Sachs CFO Martin Chavez called the report “fake news” and said the bank is working on Bitcoin derivative known as “non-deliverable forward.” He also made clear there has never been a timeline for setting up a crypto trading desk, per CNBC report.]
10,000 Bitcoin Short-Sell
Prior to Bitcoin’s slump this week, it had enjoyed positive investor sentiment for nearly a month.
The potential manipulation occurred in early hours Wednesday (U.S. time) when RoninAI detected a rise in social sentiment even as BTC plunged by nearly $350 in less than two hours. The firm’s analysts said, “[the chart doesn’t indicate bullish or bearish, rather a sudden influx of activity that is not authentic.”
The team added, “the break above the 3 standard deviations took place about 10 to 15 minutes right before crypto declined to spur more questions as to whether such an event was, in fact, a market manipulation or not. The timing in addition to the unnaturalness of such a spike is [a] strong [indication].”
According to RoninAI’s website, the firm’s software for crypto investors can uncover market manipulation. “[Our] adaptive Ai indicators [break] through the noise of the crowd giving you the edge at every turn with notifications on suspicious patterns beforehand.”
In a July 20 blog, the firm advises traders “don’t follow the crowd.” The blog adds, “It has been proven that social sentiment influences cryptocurrency prices, so the opinion of the crowd certainly matters …. Successful traders advise that when trading in the crypto market, one should take into account what the general masses are saying, but to remain skeptical and incorporate the movements of the crowd into a more advanced strategy.”
The U.S. Securities and Exchange Commission (SEC) defines illegal insider trading as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.”
However, Bitcoin and other cryptocurrencies present obstacles to finding market manipulators and inside traders due to lack of regulatory framework as well as lack of technological know-how by agencies. It can be possible to hide the identities of perpetrators when executing large crypto trades, and multi-jurisdictional investigations can be difficult.
Additionally, bureaucrats themselves can engage in insider trading. In January, employees of the South Korean Financial Supervisory Service, a regulatory agency, were investigated for potential illegal selling of cryptocurrencies based on non-public knowledge that the government would soon crack down on the local industry.
In March, Coinbase was sued by plaintiffs alleging that employees tipped off traders prior to the launch of Bitcoin Cash (CRYPTO: BCH) on the Coinbase exchange. A listing that led to a large spike in BCH valuation. An internal investigation that ended in July concluded that no wrongdoing took place.
Articles by Marvin Dumont:
Disclaimer: The views expressed in this article belong solely to the author. Information contained herein should not be construed as investment advice.