- Coinbase soared as much as 20% on Wednesday after saying it had no exposure to failing crypto firms.
- In a blog post, the crypto exchange said it has no financial risk from platforms like Celsius, Three Arrows, or Voyager Digital.
- “We believe these market participants have been caught up in the frenzy of a crypto bull market and have forgotten the basics of risk management.”
Coinbase stock surged on Wednesday after the crypto exchange said it had no exposure to Celsius, Three Arrows or Voyager Digital, three major crypto players in the midst of bankruptcy proceedings.
Shares soared as much as 20% to hit an intraday high of $79.00 before paring gains to 11% by midday.
In a blog post written by four executives, the company assured its customers of the security of its platform through its risk mitigation protocols.
“The solvency issues surrounding entities like Celsius, Three Arrows Capital (3AC), Voyager and other similar counterparts were a reflection of insufficient risk controls, and reports of additional distressed companies quickly turn into bankruptcy stories, restructuring and failure,” Coinbase said. .
The problems had more to do with their credit arrangements than with cryptocurrencies, he added, noting that many companies were over-leveraged with short-term liabilities incompatible with longer-term assets.
“We believe these market participants have been caught up in the frenzy of a crypto bull market and have forgotten the basics of risk management,” the company said.
The three struggling crypto players filed for bankruptcy within weeks of each other amid the crypto market crash earlier this year.
Hedge fund Three Arrows defaulted on a $670 million loan to broker Voyager in June, after lending $1.2 billion in total despite holding just $685 million in assets. Voyager then filed for bankruptcy with just $110 million in assets on hand, as did crypto lender Celsius, which had an even higher ratio of $5.5 billion in bonds and just $170 million in cash. assets.
But Coinbase said it has not engaged in similar practices, noting that it does not lend deposits unless asked to do so by customers. It also requires more than 100% collateral on a loan and claims to hold deposits at a 1:1 ratio.
The recent series of crypto meltdowns have renewed calls for the government to crack down on regulations. US Senator Elizabeth Warren told Yahoo Finance she was “sounding the alarm bells on crypto”, urging regulators to enforce tougher rules and protect investors.
“Ultimately, it may still take time for the industry as a whole to learn the right lessons from the systemic shortcomings we have seen,” Coinbase said.