Unmitigated exposure to insider trading and pump and dump schemes – In any asset, there is a significant informational asymmetry between insiders and outsiders. In stocks, insiders are people as executives and mutual funds who have material, unfair advantage over outsiders who do not have access to the latest financials, boardroom meeting minutes etc. In cryptocurrencies, insiders are the executives of the companies behind cryptocurrency tokens, mining pools and large holders (“whales”). Regardless of the asset, insiders have access to critical information sooner than the outsiders, which allows them to buy before rallies and sell before selloffs.
One of the biggest influencers are large holders, which means when there is a cryptocurrency with a market capitalization of $5 million and one person holds 10% or 20% of the tokens, then that person can manipulate with the price of a token very easily and it is not considered illegal as it is a decentralized market with no regulations. Unless anticipant is an insider, this informational asymmetry is bad if left unregulated, because it rigs the game in favor of insiders. In the long run, this will discourage outsiders from investing because they want to avoid losing money. Stocks have strict insider trading laws and processes that protect outsiders. The system is not perfect, but it at least incentivizes insiders not to trade on non-public information. The punishment for insider trading is jail time, reputational damage, repatriation of profits, and severe fines, which is enough to scare most insiders.
In cryptocurrencies, however, there are no laws protecting outsiders and it is simply because regulations have not caught up to the rapid rise in cryptocurrency trading. Furthermore, many altcoin founders and exchanges operate outside of the United States in countries like Switzerland and Singapore. Moreover, many cryptocurrency exchanges do not collect any identity information such as name or passport, which makes tracking and punishing the actual people behind unfair trading activities difficult. Therefore, no government has any data to determine whether certain activities are illegal or not, or to convict anyone.
source: https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/cbovaird/2018/02/12/cryptocurrency-markets-gripped-by-wait-and-see-mentality/&refURL=https://www.google.dk/&referrer=https://www.google.dk/
Difference in trading cryptos and stocks #1 | Ecency
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