5 months ago 2 min read

Coinbase: Will It Cease?


Coinbase shut down its affiliate program in July 2022. A similar function dubbed Sophisticated Trade was introduced a month before Coinbase Pro, its advanced trading division, was shut down. These two disclosures, along with the consolidation of its USD and USDC order books, led to a flurry of speculation that Coinbase might go bankrupt.

Additionally, Coinbase's financial performance in 2022 took a significant setback for the cryptocurrency exchange following a turbocharged bull run for the majority of the market in 2021. The company detailed major losses totaling approximately 1.1 billion in its Q2 earnings report, a drop in revenue of about 60%, mostly as a result of macroeconomic factors and structural issues in the cryptocurrency industry that decreased trading volumes on Coinbase.

The cryptocurrency community seems to be split, with individuals on one end of the spectrum asserting that Coinbase is on the verge of bankruptcy—claims that Coinbase has repeatedly denied—and users on the other end of the spectrum asserting that this is nothing more than FUD. Following the demise of cryptocurrency firms including Celsius, Voyager, and Three Arrows Capitals, who all had direct exposure to Terraform Labs and the failing UST/LUNA, rumors and controversies broke out.

In its Q2 shareholder letter, the company stressed that risk management was a top priority and emphasized that they had never done business with the aforementioned companies. Instead, according to Coinbase's Q2 earnings report, the company aggressively invested in the creation of products with premium features and effective risk management for institutional and retail customers.

Brian Armstrong Says There No Chance of Bankruptcy

According to Brian Armstrong, the company is not in danger of going out of business, but they have been striving to give retail users the same legal protection as Prime and Custody clients in the event of a "black swan catastrophe."

This comes after Coinbase's 10-Q form, which basically declares that retailers' funds are at risk in the event of insolvency and was submitted to the SEC. Public corporations that administer cryptocurrency for outside parties would have to disclose this information under SAB 121 of the SEC. According to Brian Armstrong:

"5/ This disclosure makes sense in that these legal protections have not been tested in court for crypto assets specifically, and it is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings…"

What Will Coinbase Do Next?

The SEC is currently exerting pressure on Coinbase. A number of subpoenas and demands for documentation, as well as inquiries about the exchange's staking program, yield-generating products, and token listing procedure, have been made by the regulatory body to the exchange. The exchange has frequently refuted claims made by the SEC that 90% of its bitcoin are securities. The SEC previously confronted the exchange with this assertion.

As a result of pressure from US regulatory agencies, Coinbase retaliated and backed digital asset management Grayscale in its legal dispute with the SEC. Having claimed that the SEC is "failed to apply uniform treatment to similar investment vehicles," the latter is suing the SEC for rejecting a Bitcoin ETF.

Aside from the current political climate in the US, Coinbase has been concentrating on introducing new products and services both domestically and internationally, such as a crypto scorecard that enables users to learn about the positions of US politicians on cryptocurrencies based on where they reside.

Recently, Coinbase and Google collaborated to enable consumers to pay for cloud services using cryptocurrencies. Both businesses said that starting in 2023, this partnership would contribute in the spread of Web3 technology.

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