Crypto market participants suggest that Hong Kong-based trading brokerage Alameda Research and its trading partner, crypto exchange FTX, are using insider information to trade digital assets — something that is punishable by fines and incarceration in regulated financial markets.
Alameda — considered one of the top firms of its kind in the world — and FTX, a crypto derivatives exchange, are both owned by CEO and founder Sam Bankman-Fried, a 29-year-old graduate of the Massachusetts Institute of Technology. Born in Stanford, California, Bankman-Fried is one of Hong Kong’s richest people and the world’s richest under 30 years old.
In November 2019, Bitcoin Manipulation Abatement LLC sued FTX, Alameda and some of their associates in a San Francisco court, accusing them of market manipulation. Bankman-Fried was among those accused of having “conspired…and participated in a long-running enterprise…engaging in a continuing pattern of racketeering activity involving, among other unlawful acts, operating an unlicensed money transmitting business.”
The lawsuit claimed that the manipulation involved at least 35 different derivatives exchanges including the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME). The defendants misappropriated money using many crypto traders, the plaintiff said. They were using strategically timed trades on new markets hoping for a liquidation cascade effect. The plan was to create an artificial price movement on Binance that could execute some stop-loss orders and liquidate long positions on the asset. The effect would have soon cascaded to other exchanges, causing mass manipulation, Inside Bitcoins reported. The defendants tried twice to manipulate bitcoin futures prices on Binance, according to the lawsuit. The plan failed after Binance launched its own bitcoin derivatives trading platform and its internal controls prevented manipulation.
The plaintiff voluntarily dismissed the case a month after filing it.
Under the umbrella of Alameda Research, Bankman-Fried — known in the cryptoverse as SBF — developed FTX and the decentralized finance project Serum, which claims to bring unprecedented speed and low transaction costs on the Solana blockchain, an independent blockchain with its own smart contracts and native cryptocurrency, SOL. FTX ranks high in volume of crypto traded at No. 6 as of this writing. Binance ranks No. 1 and BitMEX ranks No. 8.
Earlier this year, Bankman-Fried told New York Magazine that he estimated his net worth at $10 billion, mostly in illiquid assets, amassed in less than three years, Cointelegraph reported.
Sam Trabucco, considered the most influential trader in crypto, works for Alameda Research. Trabucco is credited with helping move crypto prices with his tweets and commentary but he is also influential in trading himself. SBF has interests in providing a supposedly neutral marketplace with the exchange as well as directional trading, making bets on where the market is going to go.
For Alameda Research, bitcoin’s July 19 plunge below $30,000 was a buy-the-dip opportunity. On July 20, Trabucco tweeted, “So everything is pointing (weakly!) in the direction of wanting to get longer here. Futures premia are low, too, and OIs have shifted in a way where, if there IS a recovery, it could definitely trigger liquidation-driven momentum (admittedly, we’re not that close to this). And all these led to Alameda doing what we do best — buying a LOT more over the past day or so. This isn’t quite ‘sell us all you want below $30k and fuck off’ territory, but we’re continuing to buy down here, because it really just seems like too much points that way.”
Some market participants suggest that SBF is catching fish, knowing exactly where the fish are and the vulnerabilities of the fish — his customers at FTX. Theoretically, he could use this inside information with his brokerage to trade directionally, against or with his customers, using insider information with FTX.
“Well they are using the data from their own platform to countertrade the masses and people are willingly trading their, giving them not only the data for free but also their trading fees,” DTC Crypto Trading tweeted
@DTCcryptotrades. “Imo an exchange shouldn’t be trading, they should either hold spot or do nothing”.
Because so much greed is involved in financial markets, there are regulations in place to separate things that need to be separated to prevent collusion, fraud, and conflicts of interest.
But crypto is the wild wild west. There are few if any regulations as most of the entities are not domiciled in the U.S. and don’t accept U.S. customers on their exchanges. If crypto was regulated like the stock market, the Feds and regulators would be all over this and would be looking into it as potential criminal activity. But regulations are moving slowly and the crypto firms are purposely outside the jurisdiction of U.S. regulators.
“Some crypto market participants may be thinking SBF and Sam Trabucco, together, are like the modern George Soros that we saw in FX trading in the ’80s and ’90s,” said Edwin Smith, a private crypto investor and early adopter in the crypto space, in a text to The Moguldom Nation. “Imagine if George Soros was one of the biggest traders in the market but also owned a Top 5 FX brokerage/exchange? The combination or closeness of proprietary trading and exchanges will give rise to questions and accusations of fraud as insider information is likely to flow from such a conflicted structure.”
Massachusetts Sen. Elizabeth Warren seems to know about nefarious activities going on in crypto absent regulations to ensure the checks and balances that ordinarily you would like to see in fair markets.
Earlier this month, Warren sent a letter sent to Securities Exchange Commission Chairman Gary Gensler to request information on the regulator’s authority to regulate cryptocurrency exchanges. She asked whether the SEC “has the proper authority to close existing gaps in regulation that leave investors and consumers vulnerable to dangers in the this highly opaque market.”
Gensler has expressed concern about the exchanges where Americans go to buy and sell their bitcoin, ether and other digital currencies. He told a House Appropriations subcommittee in May that there were gaps in the regulation of cryptocurrencies, arguing that crypto exchanges would be his first priority in addressing those deficiencies, Marketwatch reported.
Trabucco is open and transparent about using data to trade crypto. He’s trading billions of crypto and the exchange owns his trading shop. Some say there is a potential for fraud and market manipulation going on.
“Tbf they admitted they are using the data anyway ‘But $40k is a local max, so there’s also LOTS of potential for shorts put on much lower to get liquidated if we rally even a little more. We’ll see!’ @DTCcryptotrades tweeted.
“Yeah, also Sam Trabucco speaking out how they loaded up on range low and then mentioning in a different thread they knew that alot of people were short and a short squeeze was likely. Then “suddenly” oh look, magic bid appears at FTX lmao” @StrongHedge tweeted.
“Been saying this for a while but it feels like an invisible hand has been propping bitcoin’s price up,”
@AltcoinPsycho tweeted. Zack Voell replied, “the invisible hands of sam tabasco from alabama resurgence” giving Trabucco and Alameda aliases now being used on Twitter.
Traders are trading on the FTX exchange and Alameda can use that information to its advantage. There may be patterns where it looks like there’s collusive activity but because there are no real regulations in the market yet, the same problems that have been addressed in financial markets are magnified in crypto.
Twitter users have pointed out that it looks like Trabucco is manipulating the market when the U.S. is asleep and there’s less liquidity — that’s when the market is easier to manipulate. $trong @StrongHedge spelled out a strategy in a tweet: “Buy the dip Buy during low liquidity hours Use liquidated shorts as fuel Generate bullish market interest All while making a handsome profit”.
“To be fair the short squeeze was inevitable at some point,” traderRB tweeted @cryptomeowmeow.
“Yeah absolutely, it was very obvious and bound to happen,” @DTCcryptotrades tweeted. “My opinion is just that an exchange shouldn’t interfere in the market. They shouldn’t be actively trading as they have the ability to move the market and gain an unfair advantge”.
“On Sunday night, BTC bounded up quite fast — it rallied steadily from $34k to $36k or so, and then shot RIGHT up to $40k all at once. What’s the story there?” Trabucco tweeted. “I think a few small effects combined here. First, there was some vague positive sentiment: Elon is in a “he loves us” phase Now maybe Amazon is in too? Maybe not but, like, maybe? China FUD in general, maybe they’ll buy BTC instead?”
Musk has been accused of pumping crypto prices and manipulating markets with his tweets. Tesla bought $1.5 billion worth of bitcoin earlier this year and became one of the two largest publicly traded corporate holders of the digital asset. Musk has been in trouble with the U.S. Securities and Exchange Commission over a tweet. He was fined $40 million, settled with the SEC in September 2018 on fraud charges and had to step down as Tesla’s chairman. Musk tweeted on Aug. 7, 2018 that he could take Tesla private at $420 per share, that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC said Musk knew that the potential transaction was uncertain, lacked financing partners, and his statements were not based in fact. The SEC said Musk’s misleading tweets caused Tesla stock price to jump more than 6 percent on Aug. 7, and led to market disruption.
A deal gone wrong between Alameda Research and DeFi startup Reef Finance revealed an inside look at the murky world of crypto trading. Alameda Research bought or “invested” $20 million in Reef Finance as part of what it said was “a handshake deal,” buying REEF tokens at a 20 percent discount. The plan was to buy more tokens for $60 million. Reef said that Alameda immediately offloaded the tokens on Binance. “We could not understand why Alameda, our long-term strategic investor would offload their tokens immediately after purchase to Binance,” Reef said, according to The Block Crypto.
Reef CEO Denko Mancheski told The Block that Alameda sold “all” tokens it bought, suggesting that it wasn’t interested in holding the tokens for the long term. Alameda’s Trabucco denied it, saying “any claims about us immediately selling all the tokens are false.” The deal to buy more REEF tokens fell through.
Alameda “did more than just sell them,” Mancheski said. They ignited a dump “which is market manipulation.” FTX — Alameda’s sister company — ran a poll on Twitter, asking users if REEF should be delisted from the exchange because it was a “rug pull,” then later deleted that tweet. The price of a REEF token fell about 30 percent in the early hours of March 16 to about $0.0175. It is currently trading at $0.0148 as of this writing.
“Strike while they are asleep,” tweeted The Moguldom Nation founder @JamarlinMartin. “The crypto manipulators wait for the liquidity to dry up & , then they start ‘painting the charts’ & running stops, forcing liquidations & getting others to jump into the PUMP. They are out there W/ exchanges & trading shops, under the same ROOF.”
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