Questions Surround Unofficial CFTC Inquiry Into Coinbase
On October 2, 2017, sources indicated that the Commodities Futures Trading Commission (CFTC) had submitted a letter of inquiry to Coinbase Inc. regarding a flash crash in the Ethereum market that took place on its Global Digital Asset Exchange (GDAX) on June 21, 2017. This occurred when a multimillion-dollar sell order initiated a trading cascade that caused the price of Ethereum to temporarily plummet.
Contrary to these reports, details of the actual letter sent by the CFTC are scarce; Coinbase did not provide a copy of it, and neither has the CFTC made it public.
ETHNews reached out and received this response from a Coinbase spokesperson:
"As a regulated financial institution, Coinbase complies with regulations and fully cooperates with regulators. After the GDAX market event in June 2017, we proactively reached out to a number of regulators, including the CFTC. We also decided to credit all customers who were impacted by this event. We are unaware of a formal investigation."
Initial reports say the letter stems from the CFTC's desire to find out what role leverage and margin trading may have played in June’s market crash.
The now-historic event transpired when a single Ether sell order to the tune of $12.5 million initiated a domino effect, emptying the exchange’s order book and causing the price of Ether to sink from over $317 to a mere 10 cents. Markets may have recovered relatively quickly (in a matter of seconds) but not without raising the call for scrutiny of exchange practices.
Originally, Coinbase made no indication that it would reimburse users, but quickly pivoted and refunded those who had losses as a result of the incident. Prior to the crash, Coinbase had offered margin trading to customers beginning March 2017 and, during its short run, the option had only been available to those who demonstrated to Coinbase that they had investment capital in excess of $5 million. After the crash, margin services were discontinued by Coinbase.
According to a CFTC spokesperson that ETHNews has been in contact with, the commission will “decline to comment” on the possible unofficial investigation of Coinbase relative to the flash crash in June. ETHNews will provide additional coverage and updates to this story as tangible facts emerge.