Coinbase is in the spotlight

For entirely different motivations, Coinbase is attracting attention from both investors (Ark Investment Management) and regulators, such as the Securities and Exchange Commission (SEC).

Cathie Wood’s Ark invests in Coinbase

News of Ark Investment Management’s interest in Coinbase at a time when the cryptocurrency market is being shaken by the FTX case quickly made the headlines. 

Barron’s and Bloomberg were first to report the news that Cathie Wood‘s investment firm is increasing its stake in Coinbase. 

On Thursday, Ark bought 420,949 shares of the Coinbase crypto exchange, expanding its exposure to more than $21.4 million.

The company distributed the shares among the various ETFs it holds, and to be precise 330,000 shares are owed to Ark Innovation ETF, 54,466 shares to Ark Next Generation Internet ETF, and finally the remaining 36,022 shares to ARK Fintech Innovation ETF. 

In the latest earnings, those for Q3, Coinbase reported that net profits declined to $576 million recording a 28% drop from $803 million in the April-May-June quarter, and trading volume dropped from $217 billion to $159 billion.

As for the FTX affair that caused the red week in the digital currency market, Coinbase, said it was safe and was not involved with FTT tokens or Alameda Research.

Owen Lau, an analyst at Oppenheimer, said on the subject:

“Although COIN has minimal exposure to FTX, before there is sufficient evidence that contagion risk is contained, cryptocurrency price pressure will likely weigh on Coinbase.”

Coinbase has made it known that it is:

“important to provide clarity on these challenges and reiterate how [your exchange] business is different.”

At the beginning of the third quarter, Ark Investment Management had sold about 1.41 million shares of Coinbase (COIN) worth about $75 million at the time.

Coinbase’s shares at the time of the transaction had lost one-fifth of their value, so the sale was made short. 

Ark has always invested in and supported COIN, remaining firmly since 2021 the third largest shareholder in the digital currency exchange with 8.95 million shares at the end of June.

The week just ended saw what is currently the exchange’s peak loss, which with an additional -4% in the last 7 days, touches a -77% negative balance in 2022.

Changpeng Zhao, CEO of Binance, made it known that FTX itself sought Binance’s help and expressed himself on the incident as follows:

“FTX has asked for our help. There is a severe liquidity crisis. To protect users, we have signed a non-binding LOI, with the intention of fully acquiring FTX.com and help hedge the liquidity crisis.”

Coinbase clarified:

“Since day one, Coinbase has strived to be the most secure and compliant cryptocurrency exchange. And today, Coinbase and our customers are in no direct liquidity or credit risk. Regardless of the Binance/FTX transaction completion, we have very little exposure to FTX and we have no exposure to its token, FTT. We currently have $15 million in FTX deposits to facilitate client trades and trades. We have no exposure to Alameda Research and we have no loans to FTX.”

SEC spotlight on the alleged sale of unregistered securities

It is worth mentioning that Coinbase is a publicly traded company in the United States, and this obligates it to fulfill controls and report data regularly and under the watchful eye of regulators to both the SEC and the New York Stock Exchange as well as shareholder communications. 

This regularity in controls puts it on a totally different plane than FTX but for the SEC it seems not to be enough and hence its interest.

The Securities and Exchange Commission and the Department of Justice (DOJ) have been shining a spotlight on the FTX case for days but recently have been thinking of channeling energies to Binance and Coinbase as well. 

The theme is always the one expressed in the Ripple (XRP) case, the regulator’s view is that assets listed on the platform and through the lending part of the exchange are financial securities.

If this theory is reflected in reality, the assets must first be registered with the SEC.

In practice, tokens are treated in the same way as financial securities, just as in the objections to Ripple for XRP. 

The alleged violation of regulations related to US exchanges is being investigated by FTX. 

Dennis Kelleher, president of Better Markets, said:

“It is not possible that the financial sector is not controlled: 

The time has come for the SEC to take legal action against these exchanges for facilitating the trading of unregistered securities.”

For the Securities and Exchange Commission, trading platforms dealing in cryptocurrency products (tokens, NFTs, ETFs, etc.) are real exchanges in their own right and should, just as Wall Street is obliged to do, publish transaction data and put in place concrete measures to combat market manipulation in addition to setting aside the sums invested by customers; if this had been done, the FTX turmoil would not have occurred.