Crypto exchange Coinbase replied to a report from The Wall Street Journal about an alleged new trading venture. Since its debut as a publicly traded company in the United States, the company’s stock has moved in tandem with the crypto market recording a 75% loss on its equity.
At the time of writing, Coinbase (COIN) trades at $64 a share with sideways movement since late August. The company experienced a bounce in late July, as Bitcoin and other cryptocurrencies trended to the upside, but that rally was short-lived across the nascent industry.
COIN’s price trends sideways after July rally. Source: COINUSD Tradingview
Coinbase Speculates Against Its Clients?
According to the WSJ report, the downside price action in its stock has led Coinbase to find a new source of revenue including the launch of a “client-driven” trading initiative. The report claims that the crypto exchange completed a $100 million transaction before “ending” the initiative.
Allegedly comprise of a group of experienced Wall Street traders, Coinbase was testing several trading and investment strategies to increase its revenue. The report claims that the initiative contemplated the use of company funds to “speculate” on the crypto market.
Some of the strategies tested by this alleged group include trading cryptocurrencies and staking them to earn rewards, the WSJ quoted people familiar with the matter.
In a report to the WSJ report, Coinbase published an official post denying the allegations. The company claims that it has never operated a “proprietary trading business”, operated as a market maker, or traded against its customer “unlike many of our competitors”.
The company claims that they offer institutional clients access to a product called Institutional Prime, but that the service was designed to be aligned with its client’s interests. The exchange said the following on their “occasional” crypto purchases and why these are different than short-term speculation in the crypto market:
Coinbase does, from time to time, purchase cryptocurrency as principal, including for our corporate treasury and operational purposes*. We do not view this as proprietary trading because its purpose is not for Coinbase to benefit from short-term increases in value of the cryptocurrency being traded.
Coinbase Bets On Web3 To Attract Institutional Investors
Furthermore, the company claims to be dedicated to deploying new products and expanding its clients’ experience in the crypto ecosystem and Web3 ecosystem. One of these initiatives is called “Coinbase Risk Solutions”.
Aiming at institutional investors, this product will provide them with exposure to the crypto market. In traditional finances, large players have expressed interest in investing in the nascent asset class.
This had led many companies and big banks to roll out investment and financial products to meet that demand. However, Coinbase claims that many institutions are still adapting and are unfamiliar with the crypto market.
In that sense, their new Coinbase Risk Solutions will help them “manage risks” and to have an active presence in the crypto ecosystem. The company claimed the following while denying that there is any conflict of interest:
The goal of CRS is to expand institutional participation in web3 beyond HODLing. In doing this, we are following a well trodden path on Wall Street where financial services firms provide clients multiple ways to get exposure to new asset classes and manage certain risks.