Coinbase fined $6.5 Million over trading irregularities

In brief

-The CFTC fined Coinbase over activities related to its in-house trading software -The agency also alleged a former employee had engaged in wash trading related to Litecoin

The Commodity Futures Trading Commission announced on Friday that crypto giant Coinbase has agreed to pay $6.5 million in order to settle a series of allegations related to how it recorded trades on its GDAX trading platform between 2015 and 2018.

The GDAX platform, which has since been rebranded as Coinbase Pro, caters to professional traders and investors. According to the CFTC, GDAX “recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets” such as Bitcoin.

The agency points in particular to activity related to two in-house software programs used by Coinbase known as the Hedger and Replicator. The CFTC alleges that, in some instances, those software programs effectively traded with each other, which may have served to artificially inflate prices and trading volumes on the GDAX platform.

Coinbase ceased using the Hedger software in 2018 at the insistence of then-COO Asiff Hirji, who had warned that such in-house proprietary trading platforms posed a systemic risk. Under Hirji, the company switched to a so-called agency trading model where every trade is conducted with an outside third party.

Meanwhile, the CFTC also alleged that one of Coinbase’s former employees had engaged in so-called “wash trading,” an illegal activity that involves an entity trading with itself in order to convey an artificially high degree of liquidity in a given market. The agency accused the employee of “intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades.”

While the CFTC did not name the employee, the activity in question occurred in the fall of 2016, and involved Litecoin, which is most associated Charlie Lee. During the time period, Lee was an employee of Coinbase and was integral in having the company add Litecoin to its platform. Lee did not immediately respond to a request for comment about the CFTC announcement.

Under the terms of the legal settlement with the CFTC, Coinbase did not admit or deny the allegations. Meanwhile, as Coinbase disclosed in a regulatory filing related to its impending plans to go public, the company is facing other investigations from the agency related to an Ethereum flash crash and the manner in which it listed Bitcoin Cash. The CFTC’s Friday announcement did not discuss those topics, and Coinbase did not immediately reply to a request for comment about those investigations.

The CFTC’s announcement also included an unusual concurring statement by Commissioner Dawn Stump. In the separate document, Stump stated that she agreed that Coinbase’s activity amounted to illegal market manipulation, but that she believed that the agency had no jurisdiction over Coinbase.

“The CFTC cannot be a full-time “Cop on the Beat” for Cash Digital Asset Exchanges,” wrote Stump, adding that actions like the Coinbase settlement is “likely to create unrealistic public expectations for an agency primarily tasked with regulating derivatives markets, not cash markets.”

Stump’s comments point to an ongoing debate over which federal agency is best poised to regulate the fast-growing crypto economy.


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Price analysis 3/19: BTC, ETH, BNB, ADA, DOT, XRP, UNI, LTC, LINK, BCH

A report by Deutsche Bank Research said that Bitcoin (BTC) has become “too important to ignore” and may attract regulation by the end of 2021. Deutsche Bank analysts expect Bitcoin to reach a turning point in about “two or three years” when it will be clear whether Bitcoin will evolve into an asset class or not. In the short term, the report forecast Bitcoin to “remain ultra volatile.”

A different report by Bank of America provided some insight into the possible reasons for Bitcoin’s volatility. Bank of America analysts estimated that Bitcoin price may rise by one percent when there is a $93 million inflow. Compared to that, gold needs about $2 billion worth of funds to move it by a single percentage point.

This large disparity in the price reaction to the inflow of funds is attributed to Bitcoin holders who have not parted with their coins during the current bull run.

Daily cryptocurrency market performance. Source: Coin360

While it is difficult to predict at what price the Bitcoin whales will book profits on their holdings, Kraken growth lead Dan Held said in a recent interview with Cointelegraph that Bitcoin could reach $1 million during the current supercycle.

Held believes that the confluence of events such as the coronavirus crisis, money printing by central banks and the rising lack of trust in legacy financial firms are the triggers supporting the crypto bull run.

Let’s study the charts of the top-10 cryptocurrencies to determine whether the uptrend will resume or is the bull run showing signs of exhaustion?