‘Credit Specific, Not Crypto Specific,’ Coinbase Execs On Insolvency Issues
- Coinbase talked about the crypto market downturn and risk management strategies in a new blog post
- The executives of the exchange also touched upon the solvency issues of Three Arrows Capital, Celsius Network, and Voyager Digital
Coinbase, one of the most prominent crypto exchanges, released a blog authored by institutional head Brett Tejpaul, head of prime finance Matt Boyd, and head of credit and market risk Caroline Tarnok, wherein they talked about the current market conditions.
In the blog, Coinbase executives also revealed their take on the insolvency issues faced by crypto hedge fund Three Arrows Capital, crypto lending firm Celsius Network, and crypto service provider Voyager Digital stating that these firms ended up in a bankrupt state which is a “reflection of insufficient risk controls.”
The crypto exchange added that these events were “foreseeable and actually credit specific, not crypto specific in nature.” Coinbase believes that “these firms were overleveraged with short term liabilities mismatched against longer duration illiquid assets.”
“We believe these market participants were caught up in the frenzy of a crypto bull market and forgot the basics of risk management. Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by 3AC meant that risk was too high and too concentrated,”The executives revealed.
The executives pointed out that such events are common in the world of traditional finance as well giving examples of Long Term Capital Management in the 1990s, Lehman Brothers in the 2000s, and even Archegos Capital Management in 2021.
Interestingly, Coinbase executives pointed out that the exchange has no exposure to the three bankrupt firms adding that they have “not engaged in these types of risky lending practices and instead have focused on building our financing business with prudence and deliberate focus on the client.”
Coinbase executives stated that the exchange has “no exposure to client or counterparty insolvencies” and “no changes in access to credit” for its users despite a prevailing bearish market which will last for eight months, as predicted by Grayscale Investments.
Since May, the COIN stock has also been bearish, following Bitcoin’s movement and is down 60.79% in the last seven months, as noted by the data from Google.
“A leading prime broker, whether in crypto or other asset classes, should understand and effectively manage counterparty and liquidity risk for the safety of their clients, shareholders, and the market. We do,”added the Coinbase executives.