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Author Topic: Question for CLAG - Is "Insider Trading" legal in Bitcoins?  (Read 2311 times)
ripper234
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Ron Gross


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July 19, 2012, 11:07:46 AM
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Two scenarios:

1. You are employed by a mid-large retail, and you find out your company is gearing up towards a Bitcoin pilot. This pilot will be publicly announced in two months. Would buying Bitcoins be considered "abusing insider information" in this scenario?

2. Same question, but instead of a retailer you are employed by one of the larger Bitcoin-related companies (e.g. Mt. Gox, BitInstant, ...). The company you work for comes up with a new Bitcoin-related innovation (e.g. they completely solve the Bitcoin scalability issue, comes up with a way to make ASICs for 1000s of dollars instead of millions, etc...). This news is expected to have a positive impact on the price of Bitcoin. Is using this knowledge to purchase Bitcoins legal?

The above questions also apply regarding the company - would it be legal for a retailer such as Amazon to secretly buy 100,000 BTC (say over a few months), and afterwards announce they accept BTC as a mainstream currency?

Please do not pm me, use ron@bitcoin.org.il instead
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Gavin Andresen
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July 19, 2012, 01:48:15 PM
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I am not a lawyer, but I believe the answer depends on how bitcoins are classified by the Securities and Exchange Commission.

If they're a currency then insider trading rules don't apply. But last time I looked the legal definition of 'currency' in the U.S. was the money issued by a recognized government.  The only insiders for a currency are the people who issue it (I bet there are strict rules on trading of any kind by Treasury or Federal Reserve employees who have inside knowledge).

If Bitcoin gets classified as a commodity, then I'm not sure what rules apply. If an employee at Apple knows that the next generation iPad is going to use a lot of unobtanium, buys a bunch on the unobtanium exchange, then sells after the announcement for a profit are they guilty of insider trading?  Probably...

If Bitcoin gets classified as a security, then I'm pretty sure insider trading rules would apply.

As always, if you're an employee at, oh, I dunno, Walmart and you know that Walmart will start accepting Bitcoin next March (I can dream, can't I?) and are tempted to buy a bunch of coin now I'd suggest you talk to a lawyer first.

How often do you get the chance to work on a potentially world-changing project?
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July 19, 2012, 04:27:51 PM
 #3

IANAL

Forex is a better analogy to Bitcoin than the stock market when considering issues such as insider trading as it is both unregulated and it involves currency (money) rather than securities. http://www.investopedia.com/articles/forex/06/SevenFXFAQs.asp#axzz215ONurFg. Having said this general provisions regarding fraud will still apply. This is after all the origin of securities laws in the first place.

Concerned that blockchain bloat will lead to centralization? Storing less than 4 GB of data once required the budget of a superpower and a warehouse full of punched cards. https://upload.wikimedia.org/wikipedia/commons/8/87/IBM_card_storage.NARA.jpg https://en.wikipedia.org/wiki/Punched_card
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July 19, 2012, 04:32:14 PM
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Why?!?!! What do you know???   Grin

Life is What you Make it!
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July 19, 2012, 04:58:26 PM
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If they're a currency then insider trading rules don't apply.

If Bitcoin gets classified as a commodity, then I'm not sure what rules apply.

If Bitcoin gets classified as a security, then I'm pretty sure insider trading rules would apply.

First, you should look at the statutes to see what the insider trading laws apply to. In almost all countries, insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options, CDSs, etc.) by insider individuals with potential access to non-public information about the company.

In this case, you would be buying bitcoins, not Apple or Amazon stock, based on asymmetrical information. Bitcoins are not a stock or other security. There is also not an organization to be 'inside' to. Therefore, insider trading laws do not apply to the trading of bitcoins.

However, if you bought Apple or Amazon stock, being an insider and based upon asymmetrical information that they were going to pilot bitcoins and you thought that would materially impact the stock price, then there could possibly be an insider trading violation if it were deemed material and you profited from it.

The first step would be to determine whether you are an insider by being an officer, key employee, director or large shareholder, etc. For example, if you are none of those and eavesdropped on the CEO and CFO at a cafe then that likely would not constitute inside information (may in the case of a tender offer, etc.).

P.S. Nice attempt at starting a rumor!

2112
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July 19, 2012, 05:47:00 PM
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I'm sorry I will not be able to provide the links, but there is a nice account available for the very similar situation.

When BMW was looking for a site to locate a factory in the USA they sent a bunch of jet-set high-level execs to travel across the States in a beater van. After BMW made a decision for Spartanburg, SC and secured all the required land, rights of way, etc. they actually published a book (in German) about their adventure and how they avoided tipping off the opportunists and getting front-run.

I remember reading excerpts in some English-language publication for car enthusiasts. Maybe someone on this forum is sufficiently literate in German to find the original publication? Or maybe someone remembers where the excerpts were published in English?

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
ripper234
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Ron Gross


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July 19, 2012, 10:36:21 PM
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P.S. Nice attempt at starting a rumor!

I wasn't. This hypothetical question has been nagging in the back of my mind for quite some time now.

Thanks!

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July 20, 2012, 11:06:07 PM
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I will defer to the others who answered before I saw this(I agree with, and think the answers provided are adequate), but thanks for thinking of CLAG.
molecular
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July 22, 2012, 09:42:25 AM
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Why?!?!! What do you know???   Grin

If someone posts "BUY BUY BUY" on the forums and I buy bitcoins, is that insider trading?

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Bitbuy


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July 22, 2012, 10:11:38 AM
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Why?!?!! What do you know???   Grin

If someone posts "BUY BUY BUY" on the forums and I buy bitcoins, is that insider trading?

No. Information on this forum is public.

www.bitbuy.nl - Koop eenvoudig, snel en goedkoop bitcoins bij Bitbuy!
molecular
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July 22, 2012, 10:19:15 AM
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Why?!?!! What do you know???   Grin

If someone posts "BUY BUY BUY" on the forums and I buy bitcoins, is that insider trading?

No. Information on this forum is public.

If he sends me a PM saying "BUY BUY BUY"?

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yesbtc
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July 25, 2012, 09:38:09 PM
 #12

Still not an insider because it's either a commodity or a currency.
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