WSJ: Coinbase earmarked $100 million to test prop trading

In 2021, the bitcoin exchange Coinbase formed a unit focused on trading and staking. Beyond serving clients’ interests, its employees also used platform funds. The Wall Street Journal.

Anonymous sources who wished to remain anonymous said that Coinbase Risk Solutions employees described this activity as проп-трейдинг. The unit included senior former Wall Street traders. They later left the company.

According to the report, CFO Alesia Haas oversaw the creation of Coinbase Risk Solutions. It was led by Brett Teipol, head of institutional sales, trading, custody services and prime brokerage services.

The WSJ noted that employees were advised not to share information about the new trading business or discuss it in internal messages.

The initiative was driven by a desire to diversify sources of revenue. Journalists concluded that the impetus for the decision was the sharp drop in the exchange’s capitalisation, which prompted consideration of more aggressive earnings strategies.

For testing trades, Coinbase allegedly earmarked $100 million. To raise that amount, the company sold an Invesco structured note with a coupon rate of 4.01%.

The tests took place after Haas, during congressional hearings testified that the company did not buy or sell cryptocurrencies with its own funds.

Platform representatives called the allegations “inaccuracies.” In a press release they added that the possibility of prop trading had been considered but was not approved by senior management.

“Coinbase Risk Solutions was created to facilitate client cryptocurrency transactions. The group had tools and a policy to mitigate conflicts of interest,” the specialists explained.

The WSJ noted that there are currently no rules prohibiting Coinbase from trading digital assets on its own behalf, which could harm clients by offering inferior quotes.

Earlier, S&P Global downgraded the exchange’s corporate rating from ‘BB+’ to ‘BB’, keeping a negative outlook.

The net loss Coinbase in the second quarter of 2022 amounted to $1.1 billion, more than double analysts’ expectations.

In August, Coinbase CEO Brian Armstrong said that the platform is cutting costs and shifting its focus to subscriptions and services in a crypto-winter environment.

Earlier, Coinbase agreed to collaborate with BlackRock. The latter’s clients will gain direct access to trading digital assets through the portfolio-management system Aladdin.

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