Is Insider Trading 'Common' in NFTs? (And is It Really Insider Trading?)

What happened after U.S. prosecutors indicted an NFT marketplace's product manager for insider trading? Vice reports: The reaction among crypto investors was largely characterized by surprise, and an acknowledgement that trading on insider information (considered by some to be A-OK in private markets) is rampant in the space. "Bro they are prosecuting insider trading on NFTs. we're all fucked," said one pseudonymous user in reply to a tweet about the case by Steven Zheng, director of research at The Block. "This is pretty shocking. I can't imagine any NFT or DeFi developer doesn't somehow profit from insider trading," said another. Of course, not every NFT investor sees this kind of activity as acceptable. Traders themselves first brought Chastain's activity to light in September using blockchain records. A pseudonymous NFT trader, who goes by Zuwu, pointed out those trades, which were easily traceable to Chastain's publicly-known Etheruem address. Unlike Chastain, other NFT traders involved in potential insider trades are often too careful to leave traces. When they do, blockchain sleuths are quick to uncover those signs of unsavory behavior and call them out — a recent phenomenon that attempts to bring some justice to an otherwise permissive market. As a result, that surprise move by the U.S. Department of Justice has NFT traders wondering what's on the horizon for this largely unregulated industry. "Insider trading is a pretty common problem in the NFT space, especially in the case of hyped-up NFT collections as lots of stuff on the market is being driven by FOMO," Fedor Linnik, an NFT trader and creator, told Motherboard. The article also explores the question of whether the NFT marketplace falls under same restrictions as stock trading, with a professor of securities law calling it "somewhat misleading" to label this an "insider trading" case. Even to call it a wire fraud case is a stretch, the professor tells them, adding "If it goes to a jury they will wonder why they should care whether someone traded jpegs ahead of them being moved around on a webpage."

Read more of this story at Slashdot.

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