All Hail Crypto’s Resilience : COIN $107 Target

$Coinbase Global, Inc.(COIN)$

Coinbase Global Inc. has been searching for new ways to make money. One business it flirted with was controversial: using its own money to speculate on cryptocurrencies.

Last year, Coinbase—which operates a large cryptocurrency exchange that handles bitcoin and other digital coins—hired at least four senior Wall Street traders and launched a group to generate profit, in part, by using the company’s cash to trade and “stake,” or lock up, cryptocurrencies, according to people close to the matter. The activity was described as “proprietary” trading by the people at the company.

Earlier this year, the team completed a $100 million transaction that the group viewed as a test trade of the new effort, according to the people. The transaction came after Coinbase executives testified to members of Congress last year that the company didn’t buy and sell digital currencies for its own account.

The monthslong effort to launch the Coinbase Risk Solutions group underscores how Coinbase, which has seen its shares tumble about 70% over the past year, has entertained more aggressive strategies as it tries to develop new businesses.

Coinbase says some at the company examined pursuing proprietary trading but decided against it.

“Our statements to Congress accurately reflect our actual business activities,” a Coinbase spokeswoman said. “Coinbase does not, and has never, had a proprietary trading business. Any insinuation that we misled Congress is a willful misrepresentation of the facts.”

The Coinbase spokeswoman added that“Coinbase Risk Solutions was established to facilitate client-driven crypto transactions,” and “conflict of interest mitigation tools and policies” were in place in the group.

There are no regulations preventing firms like Coinbase from trading digital currencies alongside their clients.

In the past, investment banks operated proprietary trading groups that were active in stock and bond markets, while also doing “agency” trading, or trading solely on behalf of customers.

Rules on banks restricting speculative trading imposed in 2010 were eased somewhat a few years ago, and Coinbase was never subject to these restrictions. Still, regulators and politicians have long worried that speculative activity by firms like Coinbase in nascent crypto markets could harm clients. When a financial firm invests money for its clients at the same time it invests its own money in the market, it can lead to risks and potential conflicts of interest with clients. For example, a firm buying or selling the same investments could drive up or down the price of these investments, hurting the clients.

In July of last year, Coinbase established the Risk Solutions unit to trade crypto for clients. The group also made plans to begin making trades with Coinbase’s cash, among other strategies, according to the people close to the matter.

The team built sophisticated trading systems to enable this trading, according to the people.Coinbase Chief Financial Officer Alesia Haas was involved in creation of the unit, which was led by Brett Tejpaul, Coinbase’s head of institutional sales, trading, custody and prime services, the people said. Employees were discouraged from sharing information about the new trading business or discussing it in internal communications, the people said.

# Crypto Trading Group

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