Chief Policy Officer At Coinbase Claims Exchange Doesn’t Use Proprietary Trading

Chief Policy Officer At Coinbase Claims Exchange Doesn’t Use Proprietary Trading

Coinbase has been the subject of numerous criticism lately. A new report from New York Attorney General’s office shows crypto exchanges, including Coinbase, are vulnerable to price manipulation. To make things worse for Coinbase, crypto scout Bitfinex’ed said that nearly 20% of Coinbase trading activity is from the exchange itself.

Proprietary trading, also known as prop trading, happens when a trading desk at a large financial institution — often a brokerage firm or an investment bank — uses the organization's own capital and balance sheet to conduct financial transactions. These trades are usually speculative in nature, and the products are often derivatives or other complex investment vehicles.

This type of trading occurs when a firm decides to profit from the market rather than from the thin-margin commissions it makes from processing trades. Firms or banks that engage in proprietary trading believe that they have a competitive advantage that will enable them to earn excess returns.

If Bitfinex’ed is right Coinbase does engage in Prop Trading. However, Mike Lempres, Chief Policy Officer at Coinbase just released a blog saying that is not the case. He begins his rebuttal in a polite and diplomatic manner acknowledging the Attorney General’s concerns:

“Coinbase welcomes the New York Virtual Markets Integrity Report, which shines a helpful spotlight on important compliance issues in digital asset exchange practices.”

Although Mike takes a hard turn in his response to the criticisms.

“Unfortunately, some media coverage inaccurately characterized the report’s findings, which are based on information we voluntarily provided in the Virtual Markets Integrity Initiative Questionnaire.” Quickly going on the defensive, he added: “We would like to correct the record.”

To the attorney general’s report states that

“Coinbase disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading.”, the Chief Policy Officer replied: “Coinbase does not trade for the benefit of the company on a proprietary basis. In order to provide an easy-to-use customer experience, Coinbase Consumer quotes a price and then quickly fills the order from our exchange platform (Coinbase Markets). This takes advantage of the liquidity provided by the entire Coinbase ecosystem.”

According to Lempres, when Coinbase executes these trades, it does so on behalf of Coinbase Consumer customers, not itself. He further clarified that the volume figure stated in the report has been misreported in the media as “self-trading,” which is inaccurate. The figure represents customer-driven volume via Coinbase Consumer. Coinbase does not operate a proprietary trading desk, nor does it undertake market making actions.

Mike finished his response by saying,

“Our goal is to be the world’s most trusted place to buy, store and interact with cryptocurrency. We welcome oversight and will continue to work with regulators to promote the cryptocurrency ecosystem.”

Although, the crypto community will always be a bit skeptical of centralized exchanges. A couple of months back Vitalik Buterin had expressed his disgust for such entities.

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