Insider Trading in the Age of Cryptocurrencies: The Current Landscape and Road Ahead

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Introduction

On October 10, 2025, a trader made $192 million by shorting Bitcoin and Ether a minute before President Trump made a tariff announcement that crashed the cryptocurrency market. This unusual trade fostered speculation that the trader was privy to non-public information from the White House. The conversation has largely revolved around whether this specific trade was insider trading. 

The consensus is that this specific trade was not insider trading but important questions remain given the pervasiveness of trades occurring with insider knowledge in the vibrant space of cryptocurrency. First, are all cryptocurrencies exempt from insider trading? Second, If an individual benefits from non-public information to time the market, might that otherwise constitute a crime? Lastly, How may the law adapt to deal with scenarios that may not be covered under current laws and regulations?

Insider Trading Defined by the SEC – Applicability to Cryptocurrencies

Insider trading, as prosecuted under the SEC’s 10b-5 rule, occurs when a person or entity trades in any security on the basis of material non-public information which has been obtained in breach of a duty of trust or confidence. This fits squarely the definition of “insider” established in In re Cady, Roberts Co. The trading of a “security” is an essential element of insider trading.

In a previous publication, we analyzed why Ether is most likely not a security under the Howie Test. This is, in relevant part, due to decentralization. The analysis and conclusion for Bitcoin are the same. Thus, by definition, trading of Bitcoin or Ether likely does not constitute insider trading under the current framework. 

Not all cryptocurrencies are exempt from security status, however. This is best exemplified in SEC v. Wahi. Notably, in this case the SEC only argued that nine out of the twenty-five cryptocurrencies traded were securities. 

Further, the required breach of a duty of trust or confidence acts as an additional hurdle. The trade benefiting from material non-public information must be tied to someone with such a duty. To date, the Wahi case is the only remaining documented success by the SEC in proving breach of a fiduciary duty in cryptocurrency trading. Here, the facts showed that a Coinbase employee breached his duty of trust and confidence to the platform. 

Thus, while not all cryptocurrencies are exempt from insider trading, liability likely only arises in very limited circumstances, such as Wahi. 

Insider Trading as a Criminal Violation - The Current Landscape

In addition to the SEC’s enforcement through the 10b-5 rule, the United States Department of Justice prosecutes insider trading through two statutes: 18 U.S.C. § 1343 (the Wire Fraud Statute) and 18 U.S.C. § 1348 (the Securities and Commodities Fraud Statute). 

The Securities and Commodities Fraud Statute

As the name indicates, to prove a violation of the Securities and Commodities Fraud Statute requires proving the trading of a Security or Commodity. As previously discussed, proving cryptocurrencies are securities is a difficult endeavor. The applicability of the statute to cryptocurrencies is further complicated by the narrow reference to commodities. Specifically, the statute requires the “purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery. . ..” essentially limiting the applicability to futures and options contracts.

The statute also requires the violator 1) knowingly; 2) implements a scheme or artifice; 3) to either a) defraud in connection with such security or commodity, or b) obtain by means of false pretenses, representations, or promises money or property in connection with the purchase or sale of such security or commodity. The statute sets a high bar. The scienter and reliance on falsity elements are typically harder to prove in connection with cryptocurrency trades due to the decentralized nature of the assets. 

Thus, there is significant difficulty proving a violation of the Securities and Commodities Fraud Statute except in limited circumstances where there is obvious intent to defraud, such as United States v. Ichioka.

The Wire Fraud Statute

The DOJ has more recently relied on the Wire Fraud Statute to criminally prosecute cryptocurrency insider trading. Some examples include the aforementioned Wahi case; the charging of eighteen individuals in the Northern District of Massachusetts in an alleged “pump and dump” scheme; and a conviction in United States v. Chastain, which was vacated earlier this year and remanded for further proceedings. 

Like the Securities and Commodities Fraud Statute, the Wire Fraud Statute requires the implementation of a scheme or artifice to a) defraud, or b) obtain money or property by means of false pretenses, representations, or promises. The main difference: it crucially eliminates the requirement to prove the trade involved security or commodity futures or options. 

While in theory convictions under the Wire Fraud Statute are more likely in connection with incidents involving insider trading of cryptocurrencies, the recent ruling by the Second Circuit on the Chastain matter has made prosecution more complicated. The case involved trades of NFTs by an OpenSea employee who knew when particular NFTs would be featured on the website, likely leading to appreciation from increased demand. The Second circuit’s analysis focused on the definition of “property” in the context of the statute. It reasoned that because OpenSea did not protect the information used by Chastain as confidential, it did not have commercial value to the company and thus could not be considered property. The Court made it clear that it is irrelevant whether the information had intrinsic value.

Thus, criminal prosecution of insider trading of cryptocurrencies will become less likely as the requirement of proving the information traders rely on has commercial value to a business. 

Regulatory Developments - The Road Ahead

On November 12, 2025, Paul Atkins, the current Chairman of the SEC said he believes most crypto tokens trading today are not securities. This is in line with the SEC’s announcement of its priorities for 2026, which notably excludes emphasis on the crypto sector. This, coupled with the development of case-law in Chastain, suggest that insider trading and cryptocurrency are not likely to appear on news headlines anytime soon other than to discuss the inadequacy of the current framework.

New Legislation is needed to allow the law to catch up with the technology. On this front, there is some hope as the Clarity Act was passed by the house earlier this year and recent reports indicate the Senate is working on its own version. A more thorough analysis of the relevant provisions will follow upon publication.

One option is to look abroad. Japan is looking to tackle this issue head on, expanding the applicability of penalties to trades of digital assets based on “undisclosed information.”  Incorporating these changes into the U.S. legal framework would certainly close the loophole on cryptocurrency trades based on material non-public information, although a more thorough analysis should be done on the potential ramifications.

Conclusion

The current landscape on cryptocurrency insider trading suggests that the gap left by the current legal framework is likely to remain unless congress takes action. Whether it is by implementing targeted legislation with broad applicability like Japan or through a more nuanced approach, the loophole should be closed. After all, as it is stated in the Financial Industry Regulatory Authority’s landing page: “a vibrant market is at its best when it works for everyone.”

*The views expressed in this article do not represent the views of Santa Clara University.