Coinbase Rejects Proprietary Trading and Crypto ‘Market Maker’ Claims

Coinbase vehemently denies that it engages in proprietary trading – but claims that some of its competitors do.

ONE The Wall Street Journal report published Thursday alleges that Coinbase hired traders to use the company’s own funds to make trades and bets on crypto with the goal of making money. According to the report, $100 million of Coinbase funds were used in a test trade that an undisclosed number of named Coinbase employees reportedly called “proprietary.”

In response, Coinbase quickly wrote up a blog mail denies the allegations, arguing that the report confuses “client-driven activities” with proprietary trading.

“Unlike many of our competitors, Coinbase does not operate a proprietary trading business or act as a market maker,” the company wrote, without specifying which rival exchanges it believed engaged in the practice.

“In fact, one of the competitive strengths of our institutional Prime the platform is our agency trading model, where we trade only on behalf of our clients,” Coinbase added.

While the self-written Web3 The company denies allegations of proprietary trading, saying it occasionally buys crypto for corporate finance and operations, according to the blog post.

“We do not view this as proprietary trading because the purpose is not for Coinbase to benefit from short-term increases in the value of the cryptocurrency being traded,” Coinbase wrote.

Given the concerns about the impact of prop trading on the US economy in the past, it is not surprising that Coinbase is taking these allegations seriously.

Prop trading is controversial because it arguably contributed to the financial crisis of 2008. Prop trading, as described in WSJ report, could run afoul of the Volcker rule, a regulation approved in 2010 in the wake of the financial crisis to stop banks from making speculative investments such as securities, commodity futures or derivatives trading.

The Federal Reserve adopted the Volcker Rule as part of the The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was designed to reform the US financial system to prevent future crises.

While some believe that trading props from financial institutions is dangerous, others have their doubts. Despite endorsing his namesake, economic adviser Paul Volcker himself said long ago that he believes prop-trading “was there, but not central” to the 2008 crisis.

However, because Coinbase acts as an exchange for digital currency, the Volcker Rule may apply.

This is far from the first allegation Coinbase and its employees have faced in recent months. Last week, a former Coinbase product manager’s brother pleaded guilty to charges of conspiracy to commit wire fraud in connection with an alleged crypto insider trading scheme involving Coinbase listing announcements.

And last month, a US congressional subcommittee asked Coinbase, along with a number of other crypto exchanges, whether “all documents” regarding how each investigates and handles fraud, claiming that the exchanges have not taken enough steps to prevent illegal activity on their platforms.

Coinbase has not yet responded to a request for comment Decrypt.