Coinbase says it will investigate potential insider trading among its employees in the wake of a sharp price increase in bitcoin cash hours before the digital currency was added to the platform.
On Tuesday, the world’s largest cryptocurrency exchange sent the price of bitcoin into free fall with the announcement it was adding support for the rival currency.
In a blog post on Tuesday, Coinbase said its more than 30 million customers would immediately be able to buy, sell, send and receive bitcoin cash.
Bitcoin cash is an offshoot or “fork” of the main bitcoin line, created in August this year, designed to allow for faster and cheaper transactions.
Following the news, bitcoin’s price plummeted by 15 per cent, from a high of around US$18,400 ($26,234) to bottom out at US$15,580 ($22,213), according to research site CoinDesk. By early afternoon on Wednesday it was trading at around US$16,170 ($23,061).
Meanwhile, the price of bitcoin cash skyrocketed, nearly doubling from around US$1,850 ($2,637) on Tuesday to US$3,500 ($4,991) on Wednesday. Coinbase was forced to halt trading in bitcoin cash as the price temporarily spiked to around US$8,000 ($11,408), leading to confusion as to whether it was a pricing glitch.
Amid accusations of insider trading, Coinbase co-founder and chief executive Brian Armstrong said the company took the issue very seriously.
“It appears the price of bitcoin cash on other exchanges increased in the hours before our announcement,” he wrote in a blog post on Wednesday.
“While digital currency prices fluctuate quite a lot and we have no indication of any wrongdoing at this time, I wanted to share a few thoughts with our customers.
“We’ve had a trading policy in place for some time at Coinbase. The policy prohibits employees and contractors from trading on ‘material non-public information’, such as when a new asset will be added to our platform.