Is Coinbase bankrupt? Coinbase is currently experiencing many problems. Recently a rumor reported a possible bankruptcy for the North American exchange giant. Coinbase has just firmly denied this rumor and shed light on its risk management practices.
A statement to reassure
It was through Brett Tejpaul, director of the institutional sector, Matt Boyd, director of Prime Finance, and Caroline Tarnok, director of the credit and market risk sector that Coinbase reacted to these rumors.
Through this press release, Coinbase, therefore, presents the secure and comprehensive risk management practices it puts in place which allow institutions to navigate successfully in the crypto economy.
In a blog post on July 20, the American firm recalls the complicated market context. Indeed, in recent weeks, some companies have struggled to remain solvent due to insufficient risk controls, as Coinbase reminds us.
Coinbase recalls in particular the shocks suffered by the crypto industry through the failures of Voyager, Three Arrow Capital, and Celsius. For the American company, these bankruptcies are the “reflection of the inadequacy of risk controls”.
For the crypto firm, these bankruptcies are more due to credit mechanisms than the crypto industry itself:
Many of these companies were over-leveraged, with short-term liabilities mismatched with longer-duration illiquid assets.
For Coinbase, these companies have been taken by the frenzy of the market to the point of forgetting the basic principles of risk management.
Conversely, the American company recalls not having used such practices, in particular powerful leverage effects, and not having been massively exposed to the Terra ecosystem as was the case with the companies mentioned.
The exchange also recalls that it is committed to developing its financing activity with caution.
Coinbase 's goal is:
"Our goal is to be the safest, easiest, and most reliable bridge to the crypto economy. We offer the most secure, comprehensive, and scalable products and services – including financing – and our multi-faceted risk management programs are designed to protect our customers, shareholders, and the broader crypto-economy. Our prudent risk management is key to our long-term strategy."
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Principles of risk management respected
Coinbase recalls that the company holds the assets of its customers in a proportion of 1 to 1 :
"All institutional lending activity at Coinbase is at the discretion of the client and is secured by collateral, which serves as the first layer of protection against possible default contagion. Our standard practice is to require more than 100% collateral, and we always measure risk against significantly higher price movement and volatility."
These practices allow Coinbase to have recorded no losses on their financial portfolio, no exposure to the insolvency of customers or third parties, or even any restrictions for loan withdrawals or recalls.
So many points that differentiate the American firm from companies that have filed for bankruptcy in recent weeks. Coinbase has professionals in its team with decades of experience and manages risk in the crypto environment as in any industry.
To do this, the company recalls the various essential points of its risk management:
- First of all, it conducts rigorous due diligence to avoid any unpleasant surprises with a company or a third party.
- It checks its exposure and constantly tests it by performing numerous simulations to reassess the risk regularly. In the crypto environment, the risk is constantly changing and such a practice seems essential.
- Understand how things can go wrong by analyzing the sensitive points to better limit the risk.
- It anticipates internal deficiencies because the information available to Coinbase will never be perfect or complete.
Anticipate external surprises by implementing a mitigation plan. It is essential to leave room for Murphy's Law, as Coinbase reminds us, to limit the extent of the risk.
The exchange concludes by recalling the confidence still placed in it by many institutional players, even in this complicated market period:
"We believe that our prudent risk management is why institutional clients continue to diligently and actively explore our financing products, including during recent market stress."
Coinbase believes it is this risk management that will allow it to attract new customers and continue to grow and grow the market in the months and years to come.
The exchange also reminds us that it will surely still take time for the market to learn the lessons of this complicated period and operate in a healthier way. After all, this is still a young market that needs to learn.
It is also a market with incredible opportunities but also a very high risk of slippage.
This release should reassure investors and highlight all the work to be done in this industry which is the cryptocurrency market.
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