Coinbase Denies Creating a Proprietary Trading Business Reports

Coinbase, the world’s largest cryptocurrency exchange, has denied allegations that it considered establishing an internal trading desk that would have traded and staked cryptocurrency using company assets. This was in response to a Wall Street Journal report that the US exchange was planning to establish a proprietary crypto trading desk.

According to a Wall Street Journal article published Thursday, Coinbase compensated traders for using the company’s capital to conduct transactions and stake cryptocurrencies to generate revenue. The story claims that an unspecified number of Coinbase employees used $100 million in Coinbase assets in a “proprietary” test transaction.

Did Coinbase Try to Run an Internal Trading Desk?

On Thursday, Coinbase issued a statement denying that it attempted to establish a proprietary trading department. The statement issued today was in response to a WSJ article published earlier in the day. According to the WSJ report, according to unnamed sources within the company, Coinbase planned to create an internal trading desk last year.

In response to the allegations, Coinbase stated, “Unlike many of our competitors, Coinbase does not conduct proprietary trading or function as a market maker.” Our agency-only trading approach, in which we trade solely on behalf of our customers, is one of our Institutional Primeplatform’s competitive advantages. As a result, our goals and those of our clients are inextricably linked.

The Wall Street Journal, according to Coinbase, distorted the exchange’s client-driven operations by implying that it ran an internal trading desk. The exchange platform admitted that it purchases cryptocurrency on its customer’s behalf, but this does not constitute proprietary trading. This is because the corporation claims that such operations do not benefit it. Coinbase hired some experienced Wall Street traders in 2021, according to a Wall Street Journal WSJ story. These traders were expected to lead the corporation’s new enterprise unit that would trade cryptocurrency.

Coinbase, on the other hand, has already testified before the US Congress that it is not a proprietary trading firm. At the hearing in December 2021, Coinbase officials argued that the company was an agency-only exchange that did not counter-trade its customers. According to the Wall Street Journal, Coinbase made a $100 million profit on a cryptocurrency exchange earlier this year, just weeks after the Congressional hearing.

Moreover, the transaction was completed through the Coinbase Risk Solutions section. This division was established to trade cryptocurrency on behalf of its clients. According to the WSJ, the success of this move prompted the corporation to investigate proprietary trading.

Internal Trading Desks Benefit an Exchange

Banks and exchanges use internal trading desks to trade assets with their own money. US authorities prohibited this practice, but the rule has recently been relaxed significantly. A bank’s or exchange’s internal trading desk poses a risk. The concern stems from the potential conflict of interest that such an enterprise could create. The bank or exchange may begin counter-trading its customers for profit. The prices of the assets being traded can be influenced because a bank or an exchange may take large trading positions.

Customers may lose money if this occurs. Despite dismissing the proprietary trading fees, Coinbase has sought ways to diversify its revenue. The crypto market crash has severely harmed its finances. Coinbase lost $1.1 billion in revenue between the first and second quarters. The S&P has also reduced the company’s stock price.

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