Coinbase is known as one of the most reputable cryptocurrency exchanges. A new report, however, shows that 20% of Coinbase’s trading volume is from Coinbase itself.
The report comes from the New York Office of the Attorney General, which published it online earlier today. The report was the result of a four month investigation into cryptocurrency exchanges. The New York Office of the Attorney General examined thirteen different cryptocurrency exchanges to produce its report.
Three of the 13 exchanges came away with some serious issues: Kraken, Binance, and Gate.io were all warned that they could be breaking the law, and the Attorney General’s Office passed the case to the New York State Department of Financial Services “for possibly operating unlawfully in New York.”
The other 13 exchanges, meanwhile, include major names like Coinbase and Gemini. Coinbase, Gemini, and other exchanges are all mentioned in the report, although the Attorney General’s Office declined to state that these exchanges were operating unlawfully in New York
Nevertheless, the report indicates some serious problems with Coinbase, Gemini, and other major cryptocurrency exchanges. As two of the most legitimate and regulated cryptocurrency exchanges in the world, Coinbase and Gemini are trusted by users across the United States.
The report finds that many of the world’s cryptocurrency exchanges use their exchange to make their own trades. Coinbase, Bitfinex, Poloniex, Bitflyer, and Tidex, for example, were all exchanges that admitted to trading on their own venue. Bitstamp, Bittrex, Gemini, and HBUS claimed that they did not trade on their own venue.
In the case of Coinbase, it’s estimated that approximately 20% of all trading activity is from Coinbase itself. That’s the number that Coinbase reported to the Office of the Attorney General of New York.
Here’s what the report stated:
“The OAG found that significant variation exists in the amount of trading activity attributable to those platform operators. Circle reported that it accounted for less than one percent of the executed volume on its platform Poloniex during the most recent time period reviewed. BitFlyer USA indicated that its own activity accounted for approximately ten percent of the executed volume on its platform. Another, Coinbase, disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading.”
Based on this report, Coinbase seems like the worst offender of the 13 exchanges that were investigated.
A Significant Amount Of Coinbase’s Liquidity Is Provided By Coinbase Itself
That information was pointed out by Bitfinexed on Twitter, who has spent the last year tweeting about various problems in the crypto space – including fraudulent exchange trading, the Tether controversy, and other major issues.
For Coinbase, roughly 20% of the trading activity is Coinbase themselves. Notably missing are the numbers for Bitfinex.
I’d be willing to bet that the numbers for Bitfinex trading on their own exchange are substantially higher, and likely through non-KYC bot accounts. pic.twitter.com/cjxYFLqxnh
— Bitfinex’ed 🐧 (@Bitfinexed) September 18, 2018
Would Coinbase Buy 20% Of A Crash?
Bitfinexed mentions another important problem with Coinbase and other exchanges constituting significant trading volume on their own exchanges: when crypto prices crash, will these exchanges continue trading on their own exchange? Or will these exchanges halt 20% of trading activity while the crash occurs, making the effects of the crash even worse:
“If Coinbase is roughly 20% of the volume, in the event of a significant crash, is Coinbase going to step in and buy 20% of the crash? Unlikely. This means that at any moment 20% of the real liquidity can disappear at the drop of a hat.”
Let’s say the price of bitcoin is dropping and you want to sell. You’re used to selling bitcoin fast on Coinbase because the exchange has such strong liquidity. If the price of bitcoin is dropping, and Coinbase believes it will drop further, then they’re unlikely to buy the bitcoin you’re trying to sell. They’re going to halt their 20% of trading on the exchange. This will exacerbate the crash as 20% of Coinbase’s liquidity immediately disappears.
Ultimately, this latest report indicates serious problems with several cryptocurrency exchanges and how they operate. However, it’s important to remember that only three exchanges – Binance, Kraken, and Base.io – were specifically referred to the New York Department of Financial Services for alleged violations of New York law.
It’s no secret that cryptocurrency exchanges engage in controversial business practices. This latest report from the Office of the Attorney General of New York is bringing some of these controversial business practices to light.