The central theses
- Coinbase hired a group of Wall Street traders to test a trading table last year, The Wall Street Journal reported.
- A representative of the exchange reportedly claimed that the desk was set up for clients rather than for its own trading operations.
- Other leading crypto exchanges and their executives have come under fire for their crypto trading activities in the past.
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Coinbase reportedly tested the trading arm after team members testified before Congress that it had not used its own accounts to trade crypto.
Coinbase tests trading desk, WSJ claims
Coinbase is testing the launch of an internal trading desk in 2021, the Wall Street Journal reported.
A report Thursday, citing multiple sources familiar with the matter, alleges that the crypto exchange titan hired at least four Wall Street traders to set up a “proprietary” trading desk called Coinbase Risk Solutions. The group was hired to trade and stake crypto to generate profits, the sources said.
The report further added that Coinbase Risk Solutions completed an initial $100 million transaction earlier this year after raising funds through a structured note it sold to Invesco. Coinbase employees have reportedly been barred from sharing information about the company or discussing it in internal communications.
Several senior members of the Coinbase team testified before Congress in 2021 and claimed that the company has not used its own cash to trade crypto. When asked by The Wall Street Journal, a representative insisted that the company had not set up its own dealing desk. “Any suggestion that we misled Congress is a willful misrepresentation of the facts,” they reportedly said. The representative added that “Coinbase Risk Solutions was formed to facilitate client-driven crypto transactions,” but the sources claimed that the firm is also considering using its own funds for some activities. The dealers who were hired for Coinbase Risk Solutions has since left the company, the report said.
Stock market bosses trade in the market
The US currently has no restrictions preventing cryptocurrency exchanges like Coinbase from launching their own proprietary trading desks, despite growing regulatory concerns about possible market manipulation. While none of the major exchanges focus on trading as part of their core operations, some companies have drawn controversy due to the high profile figures that have historically actively traded on the market.
Perhaps the best example of shady trading activity involving leading crypto exchanges centers on Sam Bankman-Fried, the founder and CEO of FTX and co-founder of quantitative trading firm Alameda Research. Prior to founding FTX, Bankman-Fried was best known in the crypto space for his exceptional trading skills, which helped him achieve billionaire status before the age of 30. FTX doesn’t have its own trading desk, but the close relationship it has with Alameda has often raised questions about the ethics of exchanges and their employees trading the market, even after Bankman-Fried stepped down as CEO in 2021.
Alameda is notorious for yield farming crypto tokens and trading FTX’s perpetual short products, often resulting in brutal price crashes. Bankman-Fried was also credited with ending crypto’s so-called “DeFi summer” period by launching farmed Yearn Finance tokens weeks after he saved Sushi from collapse. While Bankman-Fried has retired from his trading firm since FTX experienced rapid growth in 2021, his and Alameda’s ruthless market activities have become something of a running gag in the space.
Similarly, BitMEX co-founder Arthur Hayes became notorious for trading the market during his time as the derivatives exchange’s chief executive officer. An infamous screenshot suggests Hayes engaged in market manipulation by ordering a colleague to “do the stops” on BitMEX clients because he “[needed] a new Ferrari.” In May, Hayes was sentenced to two years probation and six months house arrest for failing to implement adequate anti-money laundering measures by BitMEX. However, he is still an active trader.
While Coinbase hasn’t gone quite as far as FTX or BitMEX and their top numbers, if the Wall Street Journal report is to be believed, the trading desk plans will undoubtedly raise concerns about the exchange’s operations.
Disclosure: At the time of writing this article, the author of this article owned SUSHI, ETH and several other cryptocurrencies.
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