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Crypto: Former Coinbase worker charged with insider trading

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Yahoo Finance Live anchors report that the U.S. has charged an ex-Coinbase employee for crypto insider trading.

Video Transcript

JULIE HYMAN: There's one more thing that we want to tell you about this morning, and that has to do with what's going on in the cryptoverse. Because we have seen the first insider trading charges related to crypto. A former Coinbase employee, Ishan Wahi and two others-- his brother and his friend-- face wire fraud charges from federal prosecutors in what's the government's first cryptocurrency insider trading case.

Wahi he and his brother were both arrested yesterday. The third defendant remains at large, I was reading. It sounds like he has fled through New Delhi. Prosecutors are alleging that Wahi shared confidential information about upcoming announcements having to do with Coinbase and crypto listings. His brother and friend allegedly traded at least 14 times before certain announcements were made, and allegedly they reaped $1,000,000 from this whole situation.

Basically, for a time there when Coinbase would list new altcoins, right, they would go up because that was a larger base of users, in theory, that would then have access to those coins. This guy allegedly was tipping off-- the guy who worked at Coinbase-- was allegedly tipping off his brother and his friend about when these were going to go up. And so that's how they benefited from that.

Ironically, Coinbase, obviously, this is not Coinbase's fa-- or it doesn't seem to be Coinbase's fault. That's not what the complaint alleges. But a little bit of irony. Yesterday, also, Coinbase put in a petition with the Securities and Exchange Commission to propose clear rules for the trading of digital assets. So the industry has been pushing for more clarity on regulation.

- Yeah, absolutely

JULIE HYMAN: And this by any-- I mean, you don't need new rules to know that this was illegal.

JULIE HYMAN: Oh, absolutely wrong. And the FBI Assistant Director Michael Driscoll, he had added to this saying that this-- in the defendant's, rather, made illegal trades in at least 25 different crypto assets. Realized ill-gotten gains totaling approximately $1.5 million. And I mean, considering the insider knowledge that they had, that's really not that much.

- What's remarkable is throughout all these cases, it's been a turbulent month for crypto with headlines like this. And many cases that investors in this space have never seen, really damaging. I would say the trust and the credibility of the entire sector. I'm looking at Bitcoin right now. I mean, it's on a run. It's back near $25,000.

JULIE HYMAN: And while we're talking of meltdowns in crypto, we should talk about the interview that the two founders of Three Arrows Capital gave to Bloomberg from an undisclosed location no less. Su Zhu and Kyle Davies, both of them are 35. They co-founded the company Three Arrow Capital. As we know, has had a meltdown. Allegedly has about what $2.8 billion in liabilities, something like that, to investors because of the interconnected sort of decline in crypto. And then the leverage that was put in the system.

They say they're cooperating with the authorities and that they're not on the lam so to speak.

- Did we book these guys yet?

JULIE HYMAN: Well, I don't know, I don't know.

- Are they in the Bahamas?

JULIE HYMAN: But I love some of the quotes from this interview. "People may call us stupid. They may call us stupid or delusional and I'll accept that, maybe, " said Zhu, "but they're going to, you know, say that I absconded funds during the last period where I actually put more of my personal money back in. That's not true."

- Oh, he's a real hero.

JULIE HYMAN: So you know, but the other big takeaway from this interview and just this whole situation-- again, when we talk about the interconnectedness of the cryptoverse is the trading that was going on with the Grayscale Bitcoin Trust as well, that Three Arrows Capital was basically-- they were one of the places that was arbitraging the difference between GBTC and Bitcoin itself. And then when they reversed, right, because GBTC had been trading at a premium to Bitcoin. Then it was trading at a discount to Bitcoin. That was triggering some losses, but your money is locked up in the Grayscale Bitcoin Trust for a certain period of time and they could not get it out.

So there are not only questions about the vulnerability of Three Arrows Capital, but now what is the ripple effect to GBTC and to the digital assets parent company of Grayscale? Is that clear?

- Yeah, I'm totally clear on it. I'm also just-- random fun fact to the market cap now, and Snap is approaching Coinbase. So I thought that was fun.

- Just briefly, just to add on to the Bitcoin conversation here. Just, we've seen some price consolidation at that kind of $20,000 level, even with that move lower than we'd seen over the past week all in. But then over the past kind of five days with this move higher. You know, something feels a little bit different about this most recent kind of three day period. This three day move back to $24,000 as we're watching that.

And so just keep an eye on some of the altcoins that are also seeing a rise at the same time. But this consolidation and the move higher, that could signal that some of the wash-out, at least, has perhaps subsided. But we'll see. And time will tell more longer term. But we've seen more of that price consolidation, and then a move to the downside in the past as well.