1confirmation Founder: Why Insider Trading Can Accelerate Market Discovery of True Value

A new perspective on insider trading has sparked reflection in the crypto community. ### The founder of 1confirmation, Nick Tomaino, recently wrote that although insider trading is usually viewed negatively, its essence is to trade based on more accurate information. Allowing insider trading could actually help prices more quickly converge to their true value. This view challenges the long-standing regulatory prohibition logic and exposes contradictions in current policies.

Core Logic of the Perspective

The Efficiency of Price Discovery

Tomaino’s argument revolves around a fundamental assumption: traders with more accurate information can push prices to reflect true value more rapidly. According to this logic, banning insider trading actually keeps the market in a state of information asymmetry, delaying the efficiency of price discovery. He summarizes this point with a phrase—“Prices are honest, but narratives can be deceptive”—implying that market prices often are closer to reality than public narratives.

Policy Inconsistencies in Practice

Interestingly, Tomaino points out contradictions within the regulatory system itself. The US SEC strictly prohibits insider trading in securities markets, ostensibly to enhance public trust. Meanwhile, the CFTC adopts a more lenient stance toward insider trading in commodities and futures—trading futures and commodities on material non-public information is fully legal as long as it does not involve deception or manipulation.

This differentiated regulation highlights the problem. If insider trading is inherently harmful, why is it permitted in futures markets? If it is beneficial, why is it banned in securities markets?

Irony in Reality

The article also mentions a real-world example: former US House Speaker Nancy Pelosi made $1.3 billion through stock trading during her 37-year political career. This figure reflects that even in highly regulated power centers, information advantages can be fully exploited. Bans exist, but enforcement and effectiveness are another matter.

Implications for the Market

The Uniqueness of Crypto Markets

This discussion is especially relevant to crypto markets. Participants are mostly retail investors and small institutions, with varying levels of information access. Allowing insider trading might further exacerbate information asymmetry, but conversely, it could also accelerate the incorporation of more information into prices.

The Future of Prediction Markets Tomaino concludes by noting that the development of prediction markets remains to be seen. Prediction markets are inherently scenarios based on informational advantages, and their growth could prompt the industry to reconsider the issue of insider trading.

Summary

The core of this discussion is not to defend insider trading but to ask a deeper question: which is more important—market efficiency or information symmetry? Is there a balance point that allows markets to discover true value more quickly without excessively harming retail investors?

Current policies prohibit insider trading to protect retail investors, but enforcement effectiveness is questionable, and policies are not entirely consistent. As a newer financial system, crypto markets might have the opportunity to make different choices on this issue—provided they recognize the true trade-offs between risks and rewards.