There has been public speculation that the accused trader may have had foreknowledge of the tariff announcement due to perceived connections with President Trump or his administration.
A crypto trader stands accused of insider trading after successfully shorting the market to make tens of millions of dollars during the crash on Friday, Oct. 10. The crash came after President Donald Trump’s announcement of tariffs on China.
The trader, operating under the alias Garrett Bullish, shorted the market shortly before the tariff announcements from Trump on Truth Social.
That post sent the market plummeting, losing $19 billion.
“It’s a bit unusual, right, based on the size, the timing and the unhedged nature of this trade,” Sean Stein Smith, associate professor at Lehman College and member of the Advisory Board of the Wall Street Blockchain Alliance, told Straight Arrow News. “Meaning that as the person was actually planning this trade, he, she or they, had pretty much absolute confidence of the direction of the market.”
Insider trading in this case would work similarly to the regular financial markets.
“If you know in advance something like that, it’s definitely technically possible, largely in the same way as the financial markets,” Yevgeniy Dodis, professor of computer science at New York University, told Straight Arrow News.
That trader has refuted those claims in a now deleted post on X, where they denied any connection to the Trump family or Donald Trump, Jr.
They also posted a series of tweets on X explaining their decision making to short the market.
“Shorting the market was probably a rational decision at that time for anybody,” Bill Maurer, professor of anthropology and the dean of the School of Social Sciences at the University of California-Irvine, told Straight Arrow News.
That same investor has since placed a fresh bet against Bitcoin.
The loud calls of insider trading mostly circled around that investor having some form of communication or relationship with the Trump administration.
“It does make sense, especially given the tight connections between people in the crypto world and people in Trump’s orbit,” Maurer said. “You could easily imagine someone getting wind that he was going to make this post on Truth Social.”
Trump’s sons Donald Jr. and Eric, along with Trump himself, are co-founders of cryptocurrency company World Liberty Financial. Trump is now one of the largest investors in crypto in the world.
“That speaks to that real tight relationship between the Trump administration and the crypto world, which is a problem, right?” Maurer said. “And this is an example of why it’s a problem. Even if there’s nothing nefarious going on, people are going to assume there is because they’ve seen the banquet at the White House.”
Cryptocurrency is not regulated like the stock market.
“There’s a lack of regulations,” Dodis said. “The financial markets will learn it the hard way.”
With a lack of regulations, it’s hard to prove or punish alleged insider trading.
“If this country had continued down the path it had set out on a few years ago in starting to treat crypto more like a security, then there might have been a remedy by this time for someone to claim insider training,” Maurer said. “But we took a turn, and now the [Securities Exchange Commission] has stepped back from crypto regulation.”
The SEC regulates crypto as a security. For example, initial coin offerings, token sales and more.
Meanwhile the Commodities Futures Trading Commission, or CFTC, regulates crypto as a commodity for things like Bitcoin and Ethereum derivatives.
Then, there’s the Federal Trade Commission, which addresses fraud and scams.
If all of that seems confusing, it’s because it is. Crypto regulation is fragmented across the country and the world, making regulation difficult.
“Crypto markets are largely decentralized, so we don’t actually know who is responsible and so on,” Dodis said. “We don’t have very good laws in this regard.”
Maurer added proving this case is insider trading will be tough.
“Will we ever know for sure, probably not,” Maurer said.
Even if someone wanted to investigate further, the ongoing government shutdown limits the power of agencies like the SEC and CFTC.
“Those offices are only operating at a much lower level,” Smith said. “So the bandwidth of people able to conduct investigations is going to be much, much less.”
One question that’s repeatedly come up in these allegations is how someone could know the crypto market would be impacted by a tariff announcement the same way the stock market would.
Historically, crypto has acted more like a commodity like gold, moving independently of the stock market.
“It used to be that like crypto and gold would go together,” Maurer said. “And now it’s like crypto and the market go together and gold goes the other direction.”
Crypto is still a relatively new currency and brings the risks of that with it.
“Crypto assets are extremely, extremely volatile, and we just saw an example of that volatility,” Maurer said.
Those SAN spoke with said this latest incident shows how much crypto has penetrated.
“As crypto has become more understood and sort of more mainstream, that sort of counter cyclical element that had been part of the crypto trading strategy has in turn faded away quite a bit,” Smith said.
Crypto is also being bought up by big institutional investors like Fidelity, which Maurer said could explain why it’s moving more with the traditional market.
“If they’re taking a hit, crypto is taking a hit,” Maurer said. “I still wouldn’t say that it shows that crypto is more mainstream or that this is a mature market, but it definitely shows that crypto is more intertwined now with the rest of the overall market.”
Adding to that was the level of tariff implemented by Trump.
“A 100% tariff on China, and specifically around the whole rare earth discussion, which has become geopolitically significant, that’s pretty huge,” Maurer said. “And given the shocks to the markets that have already taken place because of various tariff announcements, you could easily assume, yeah, okay, this is going to be big.”
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