Coinbase tested an internal crypto trading desk last year: WSJ

Quick Take

  • Crypto exchange giant Coinbase started setting up an internal trading desk last year, according to the Wall Street Journal.
  • Coinbase reportedly abandoned the idea after a $100 million trial as senior traders hired to run the unit left the company.

U.S. cryptocurrency exchange Coinbase started setting up an internal crypto trading desk last year despite previous assurances to Congress that it was not running a proprietary trading business, the Wall Street Journal reported today.

Coinbase created an internal business unit for crypto trading and staking in July 2021, according to the WSJ. The report, which cites unnamed internal sources, says the firm hired senior Wall Street traders to helm the effort to invest the company’s own funds in crypto trading activities.

Proprietary trading by exchanges is frowned upon by regulators as it can constitute a conflict of interest. Internal trading desks can lead to exchanges trading against their customers and can lead to significant client losses.

Last December, Coinbase executives appeared before Congress to state that they were not running a proprietary trading business. Prior to this, the platform had established a business unit for trading crypto on behalf of clients called Coinbase Risk Solutions and in 2022 this unit completed a $100 million crypto transaction from which it profited, according to the WSJ. 

Coinbase ended its attempt to create an internal trading desk after the $100 million deal was completed. The WSJ report claims that some people within the company were no longer sold on the idea of doing proprietary trading. The Wall Street traders hired to helm the unit also left the company, the report added.

“Coinbase does not, and has never, had a proprietary trading business," a spokeperson for the exchange told the WSJ. "Any insinuation that we misled Congress is a willful misrepresentation of the facts."

A spokesperson for Coinbase told The Block that the WSJ's reporting contained inaccuracies and the exchange later published a blog post reacting to the article. 

"Unlike many of our competitors, Coinbase does not operate a proprietary trading business or act as a market maker," the company said in the blog. "In fact, one of the competitive strengths of our Institutional Prime platform is our agency only trading model, where we act only on behalf of our clients."

"Coinbase does, from time to time, purchase cryptocurrency as principal, including for our corporate treasury and operational purposes," the blog continued. "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."

These reported attempts at running an internal trading desk are coming at a time when Coinbase is trying to diversify its business to drive further growth. The company’s revenue dipped $1.1 billion in Q2 2022 amid the broader crypto price downturn that has characterized the year so far.

Coinbase shares were little changed in pre-market trading on Thursday. 

Updates with comment from Coinbase and details of its blog post.

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