Hoping to ease customer concerns, Coinbase announced that it has “no financial exposure” to Celsius Network, Three Arrows Capital or Voyager Digital.
“Many of these companies are over-leveraged and their short-term liabilities are inconsistent with their longer-term illiquid assets,” Coinbase explained in a July 20 post.
Each of the above companies filed for bankruptcy after a drop in cryptocurrency prices, which in turn led to the liquidation of high leverage positions.
“We do not engage in this risky type of lending and instead focus on growing our financing business carefully, while putting our customers first,” Coinbase added.
The announcement had a positive impact on Coinbase’s share price which rose 15% to $75.68. A price that remains even 70% lower than the $251 reached at the beginning of the year.
Coinbase acknowledged making an “intangible investment” in Terra
Coinbase also revealed that its venture capital subsidiary has made an “immaterial investment in Terraform Labs”, Terra’s parent company. In May, the blockchain, valued at $60 billion, crashed heavily, creating a dangerous domino effect within the market.
Indeed, Coinbase has been the subject of a frenzy of speculation. Some analysts even interpreted the suspension of its affiliate program as a sign of its insolvency. However, his latest statement appears to have succeeded in allaying investors’ concerns.
Coinbase clarified that the solvency issues of Celsius, Three Arrows, Voyager and other similar platforms “show poor risk control.” The company added that “these issues are predictable and related to credit, not crypto.”
The exchange also clarified that it does not use client assets for lending or other activities. All lending activity is carried out “at the discretion of the client and is supported by collateral, which serves as the first layer of protection against a possible contagion effect”.
“Coinbase still holds client assets with a 1:1 ratio,” the company continued. This means that user funds are available for withdrawals around the clock.
“We always require guarantees of more than 100%…so we have no losses in our financial portfolio and no exposure to third-party insolvency”.
A wave of bankruptcies is sweeping the crypto market
After the Terra (LUNA) ecosystem debacle in May, the crypto market fell sharply. As Bitcoin (BTC) has fallen more than 70% from its all-time high, crypto heavyweights like Celsius and 3AC find themselves facing an unprecedented liquidity crunch.
Over-indebted, these entities have no choice but to suspend withdrawals. For their part, investors rushed to withdraw their funds. The value of assets held by these companies fell so much that they could no longer meet withdrawal requests.
After a long battle, Celsius, 3AC and Voyager declared bankruptcy. Zipmex, a Singapore-based crypto exchange targeting the Asian market, has also suspended withdrawals due to the market decline. As reported by Be[In]Crypto, Coinbase recently invested several million dollars in the platform.
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