Crypto exchange Coinbase responded to a report of the Wall Street Journal about an alleged new business venture. Since its beginnings as a publicly traded company in the United States, the company’s shares have moved in parallel with the crypto market posting a 75% loss on its equity.
As of this writing, Coinbase (COIN) is trading at $64 per share with sideways movement since late August. The company rebounded in late July as Bitcoin and other cryptocurrencies trended higher, but that rally was short-lived in the fledgling industry.
Coinbase is speculating against its customers?
According to the WSJ report, the downward price action of its stock led Coinbase to find a new revenue stream, including the launch of a “client-centric” trading initiative. The report claims that the crypto exchange completed a $100 million transaction before “terminating” the initiative.
Allegedly made up of a group of experienced Wall Street traders, Coinbase was testing several trading and investing strategies to increase its revenue. The report claims that the initiative envisioned the use of company funds to “speculate” in the crypto market.
Some of the strategies tested by this alleged group include trading cryptocurrencies and staking them to earn rewards, the WSJ quoted people familiar with the matter.
In a report to the WSJ report, Coinbase published an official article denying the allegations. The company says it has never operated a “property trading business”, acted as a market maker or traded against its client “unlike many of our competitors”.
The company says it offers institutional clients access to a product called Institutional Prime, but the service was designed to be aligned with the interests of its clients. The exchange said the following about their “casual” crypto purchases and why these are different from short-term speculation in the crypto market:
Coinbase purchases cryptocurrency as a principal from time to time, including for our corporate treasury and operational purposes*. We do not consider this proprietary trading as its purpose is not for Coinbase to benefit from short-term increases in the value of the cryptocurrency being traded.
Coinbase bets on Web3 to attract institutional investors
Moreover, the company claims to be dedicated to rolling out new products and expanding the experience of its customers in the crypto ecosystem and the Web3 ecosystem. One of these initiatives is called “Coinbase Risk Solutions”.
Aimed at institutional investors, this product will provide them with exposure to the crypto market. In traditional finance, big players have expressed interest in investing in the nascent asset class.
This had led many companies and large banks to deploy investment and financial products to meet this demand. However, Coinbase claims that many institutions are still adapting and unfamiliar with the crypto market.
In this sense, their new Coinbase Risk solutions will help them “manage risk” and have an active presence in the crypto ecosystem. The company asserted the following while denying the existence of a conflict of interest:
CRS’ goal is to expand institutional participation in web3 beyond HODLing. In doing so, we are following a well-trodden path on Wall Street where financial services firms offer multiple ways for their clients to gain exposure to new asset classes and manage certain risks.