No financial vulnerability to embattled crypto firms: Coinbase

Coinbase is not affected by the crypto firms that are currently experiencing bankruptcy, reorganization, and other difficulties.

This was in response to a Celsius Network executive recently claiming that the leading US-based cryptocurrency exchange is facing financial difficulties. The Celsius Network is a decentralized lending and borrowing platform built on the Ethereum blockchain.

In a blog post on Tuesday, Celsius’ CEO Alex Mashinsky says that “sources close to the situation” have revealed. To him that Coinbase is “in serious financial trouble” and is facing “insolvency.”

The firm is moving to reassure its customers and the entire crypto community that their money and, by extension, their assets are secure amid all of the market upheaval.

Coinbase, an exchange-traded fund (ETF) listed on the Nasdaq, claims it has “no financing exposure to the organizations” that have seen difficulties and that the firm did not engage in lending irregularities associated with numerous of the platforms.

The exchange’s assurance comes as Zipmex was the latest platform to halt withdrawals owing to liquidity concerns and exposure to troubled counterparties. Celsius, another company that allows users to earn interest on their digital assets, also stated last week that it is insolvent.

In a blog post on Monday, Coinbase said: “Coinbase does not have any financing exposure to the groups of companies that have hit turbulence recently. We have also not engaged in any of the lending practices that have contributed to the liquidity issues currently plaguing the industry.”

The US exchange said that its “lending and borrowing products” are only available to institutional clients and are not “material to our business”.

A credit-specific issue

Coinbase principal officers, Matt Boyd (Head, Prime Finance), Brett Tejpaul (Head, Coinbase Corporate), and Caroline Tarnok (Head, Credit and Market Risk) note in a blog post that “the recent shocks to the crypto credit environment are most likely to be a key turning point for the industry.”

The solvency problems that are currently besetting crypto businesses like Celsius Bank, Voyager Digital, and hedge fund Three Arrows Capital (3AC) are due to the lack of risk controls during the bull market, according to Coinbase. The firm believes that the lack of financial discipline by Celsius and others is an industry-wide problem.

“Celsius’s issues are likely credit-specific issues, not related to the recent sell-off in digital assets, or any material change to our business,” states Coinbase.

A ‘credit-specific problem’ is related to the financial health of a particular company, and not to broader market conditions. Celsius’s problems are therefore not indicative of a wider industry-wide issue.

Coinbase went on to say that its robust risk management practices mean that it is well-positioned to weather any storm.

The failing firms have problems that the firm sees as having to do with credit, which is separate from them being just crypto platforms.

“Many of these businesses were highly leveraged, with short-term liabilities mismatched to longer-term illiquid assets.” the Coinbase Principal officers note in the blog post.

The events surrounding the unhedged bets, which were exposed to the Terra ecosystem’s collapse, and 3AC are highlighted in Coinbase’s post as highlight events in previous traditional financial markets – the 1990s Long Term Capital Management and 2000s Lehman Brothers among them.

For Celsius, the Celsius Network has been a reliable provider of liquidity and has not had to draw on its credit facility with Goldman Sachs.

The Coinbase executives say that these companies’ problems are not indicative of a broader issue in the crypto economy.

“We believe the present crisis will force many businesses to reset their business models and return to more sustainable practices,” Celsius Network says in a press release. “This event will be remembered as an epoch-making moment in the history of our industry, similar to the dot-com collapse on the internet.”