Coinbase says it has no exposure to collapsed crypto firms Celsius, 3AC
Coinbase reported a 27% drop in revenue in the first quarter as usage of the platform declined.
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Coinbase said on Wednesday it had no counterparty exposure to collapsed crypto firms Celsius, Three Arrows Capital and Voyager Digital, seeking to allay fears about the impact of a liquidity crunch on its business.
The US crypto exchange also said it had “no funding exposure” to the firms, each of which collapsed into bankruptcy after a plunge in digital token prices set off a cascade of liquidations of highly leveraged positions.
Coinbase says it did, however, make a “non-material” investment in Terraform Labs, the Singapore-based company behind the failed stablecoin project Terra, through its venture capital arm.
“Many of these companies were handed short-term liabilities that were not matched by longer-duration illiquid assets,” the company said.
“We have not engaged in these types of risky lending practices and have instead focused on building our financing business with caution and a deliberate focus on the customer.”
Coinbase shares rose more than 13% on Wednesday. The stock has erased about 70% of its value since the start of 2022, as higher interest rates from the Federal Reserve rattled investors in both crypto and stocks.
The crypto market has been in a state of disarray ever since the demise of Terra, a so-called “algorithmic” stablecoin that attempted to maintain a $1 value using code.
This led to liquidity problems at Celsius and Three Arrows Capital, or 3AC, two companies that made risky crypto bets using borrowed funds.
As cryptocurrencies began to fall this year, investors wanted to pull their money out of firms like Celsius and 3AC. But a fall in the value of the assets held by such companies meant they were unable to process these redemption requests.
As a result, Celsius, Voyager and other withdrawals stalled, before eventually filing for bankruptcy protection.
Bitcoin climbed above the $23,000 mark on Wednesday, for the first time in over a month, alongside a broad recovery in crypto prices. The world’s top digital coin is still down roughly 50% year to date.
Investors hope the Fed will be less aggressive than feared with an expected rate hike next week.
Central banks are racing to tame runaway inflation with tighter monetary policy, but this has spooked stocks and other risky assets – crypto included – which benefited from a flood of stimulus during the Covid pandemic.
