Did you know that it didn't use to be illegal to trade commodities on "insider information"?
In the not too distant past insider information was considered a part of the commodity market place.
Up until about 2010, the CFTC did not regulate what it is considered to be "insider trades".
As an example, if an oil company could take advantage of first hand knowledge about its production outlook, so be it.
However, if traders intentionally manipulated prices artificially to make money, then the CFTC may make charges of market manipulation.
No issues though if a company recently discovered huge oil reserves unexpectedly and wanted to sell oil futures knowing that the increased supply would likely drive down the price of oil, they had every right to do so.
That is until about 2010.
In 2010 the Dodd-Frank Act changed all that.
At that point, the Eddie Murphy rule was introduced (I kid you not). This rule was loosely based on what happened at the end of the film in Trading Places.
Where the Duke brothers (two old rich guys) had been getting government information early on orange juice prices and then trading off that information.
(Source: https://www.women.com/alex/quiz-how-well-do-you-remember-trading-places)
In the film, Eddie Murphy and Dan Aykroyd were able to steal that report and feed the Duke brothers a false report.
The Duke brothers then bid prices way up and other traders followed suit.
Aykrody and Murphy then bet in the opposite direction after prices were bid way up, knowing that the real news would send prices down.
Sure enough, when the real report was released, prices crashed and everyone lost money, except Murphy and Aykroyd who became rich on the trade.
Why this is interesting to me.
The futures and commodity markets are an entire market of insider trades if you really think about it.
People are not simply buying something they think will go up at some point like stock investing, they are picking a very specific price at a very specific point in time.
People in the oil industry know that more supply is coming online so they buy contracts of lower priced oil in the future, knowing what is likely to happen, and also to hedge their own business.
In a round about way the entire industry is about insider trades.
However, that was all banned in 2010 as part of the Dodd-Frank Act.
(Source: https://www.rt.com/business/413844-bitcoin-cash-trading-investigation/)
This is all very interesting to me as it relates to Bitcoin.
Bitcoin is considered to be a commodity by most at this point.
It certainly is not a security, which means it falls outside the jurisdiction of the SEC, which regulates securities.
Many people have complained about manipulation and insider trading taking place in the bitcoin and cryptocurrency markets.
This is a bit ironic to me when just a few short years ago in the commodity markets, not only was insider trading not illegal, but it was basically common place.
In fact there are many people still today that think insider trading should be allowed across all venues as it helps create more efficient market places.
Though, the rub is how do you allow insider trading, while not allowing market manipulation, they tend to walk almost hand in hand.
Either way, interesting never the less.
Stay informed my friends.
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Excellent post Valentine 😁👍😁
This has got to be one of your favorite movies, no?
Fabulous movie from back in the day 🎥
I say just let the markets be free. All is fair in love, war, and markets!
I love that movie!! Most interesting part for me was the character development of Louis Winthorpe when having to face misfortune and terrible living conditions. Makes you think about what you can be grateful for and how quickly things can change..
Yep exactly. It is actually one of my favorite movies.
That's something very interesting article you shared today such an eye opener we should keep up the hopes :)
You just gave me one more movie to watch, i've been on a stock market binge watching movie fest, already seen wolf of wall street, big short, Wall Street, Wall Street : money never sleeps, and now i got a new one i guess...
This one is really a good one. I strongly recommend it. At least as good as those others, though a bit older. Well, not of the original Wall Street.
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creo que seguimos siendo los que menos informacion privilegiada tenemos jajaja
The issue here is how to determine what information is relevant in the longer term for bitcoin prices. As the price is really only drive. by demand and supply it is tough to gauge how to interpret any non public information and the impact to trader psychology on their decision. Intrinsic value is why bitcoin and other cryptocurrencies will never be quite efficient until adoption reaches a much higher level.
Very true. It is all based on sentiment. Information/media rules in that environment.
before watching "The Big Short" i didnt even knew what insider information was..those hedge fund managers are so conniving..
Lot of manipulation that is for sure.
Great Post and very nice crypto.