Has Coinbase Been Trading Against its Own Customers After Promising it Doesn’t do that?

Coinbase has debunked claims made by news outlet the Wall Street Journal (WSJ), which reported that despite claiming not to do so, Coinbase engaged in proprietary trading that could potentially conflict with the interest of its customers.  

In a blog post, Coinbase stated that WSJ seems to confuse the nature of a transaction it made earlier this year through Coinbase Risk Solutions (CRS) - its newly formed unit focused on helping institutional investors interested in entering the crypto market. 

The WSJ report claims the new unit was formed for the purpose of proprietary trading citing "people at the company." Proprietary trading is a legitimate practice done by banks and financial institutions that trade their own money for their gain, rather than doing so to earn a commission from their clients. 

However, the bone of contention as the report claims is that the unit performed a transaction worth $100 million. This transaction was viewed inside the company as its first proprietary trade even though Coinbase had told Congress last year that it does not engage in proprietary trades. 

In its response, Coinbase maintains that WSJ has its definitions confused. The crypto exchange clarified that the transaction was not a proprietary trade as it was carried out as a purely "client-driven activity." 

"Unlike many of our competitors, Coinbase does not operate a proprietary trading business or act as a market maker. In fact, one of the competitive strengths of our Institutional Prime platform is our agency only trading model, where we act only on behalf of our clients. As a result, our incentives and our clients’ incentives are aligned by design," the blog post said.  

Coinbase added that even its periodic crypto purchases for itself and corporate clients are not viewed as proprietary trading as the exchange does not perform the purchases to benefit from short-term increases in the value of the cryptocurrency being traded. 

Coinbase maintains CRS is not breaking any rules

Meanwhile, the Coinbase response also threw more light on the role of CRS. The unit which currently comprises four former Wall Street traders has the mandate to offer "solutions to sophisticated institutional investors who seek exposure to the crypto asset class." 

This is in line with the company's goal to expand institutional participation in web 3 beyond just passively holding crypto. 

According to Coinbase, the mandate of the unit is a well-trodden path on Wall Street where firms offer their clients multiple ways to get exposure to new asset classes and manage certain risks. Owing to this, the unit does not contradict its statement to Congress that Coinbase does not engage in proprietary trading.