As the saying goes, tall trees catch much wind,’ and for Coinbase, especially this week, this seems to be true. The seventh biggest exchange through transaction volume, as shown on Coinmarketcap is also the biggest exchange in the US. So, being at the top, it has caught a lot of flak and made a lot of news this week.
Coinbase is an important junction in the cryptocurrency ecosystem, and it has shown on a number of occasions that its influence and direction can shape the entire marketplace globally.
Its decision to integrate SegWit recently saw an upswing in those types of transactions, but on the flipside, its decision to offer Bitcoin Cash also pumped that market- in what is being called insider trading by some. Even rumors about Ripple integration have had its effect on the coin.
In the news this week alone, Coinbase has been sued twice, once for the insider trading allegations, and once for allegations that it “kept” funds that its users sent via email, but which recipients never claimed. It has also been linked to Ripple, again, and has had to deny that- which has caused swings in the Ripple price. Finally, it is still forging ahead as a pioneering crypto ecosystem with its latest offering an index fund.
Laying out lawsuits
Coinbase is no stranger to lawsuits and legal battles, having faced a few days in court before, as well as having fended off the IRS in their quest to obtain users’ trading information through the exchange. But fresh allegations have emerged, dating back to their decision to integrate Bitcoin Cash onto the platform.
At the end of December last year, Coinbase decided to add Bitcoin Cash to their offerings. This saw the price of the forked currency soar, while Bitcoin started to drop off.
Immediately, accusations flew that Insider trading was happening, despite the company making it clear that employees had been restricted from trading BCH on the site for a number of weeks prior to the announcement.
Now, a class action lawsuit has emerged from one of the Coinbase users based in Arizona, Jeffrey Berk. The plaintiff accuses Coinbase of “artificially inflated prices” by means of disclosing buy and sell orders moments after Coinbase launched BCH support. CEO Brian Armstrong said at the time of first allegations, in a blog post: “If we find evidence of any employee or contractor violating our policies, directly or indirectly, I will not hesitate to terminate the employee immediately.”
Unfair business practices
This lawsuit comes months after the allegations were laid, but is put forward: “on behalf of all Coinbase customers who placed purchase, sale or trade orders with Coinbase… during the period of Dec. 19, 2017 through and including Dec. 21, 2017... and who suffered monetary loss as a result of defendants’ wrongdoing.”
Additionally, while fielding this lawsuit, Coinbase has also been accused of keeping hold of funds sent by email which were never claimed by their recipients. It is another class action lawsuit that the exchange will have to handle delicately as it looks to keep its reputation intact in a space where there are a number of scam and badly run cryptocurrency services.
To lawsuit has been brought forward to the District Court for the Northern District of California by Restis Law Firm on behalf of two Coinbase users seeks reimbursement of the funds, including those sent involving now-expired email addresses. It is claimed that Bitcoin, which was emailed to people prior to the mainstream acceptance and understanding of digital currencies went unclaimed in many emails, and, instead of returning the coins, Coinbase simply kept hold of them. This falls under the gambit of unfair business practices being leveled at the exchange.
Both of these lawsuits, of course, do not paint Coinbase in the best of lights, despite them only being allegations currently. The negative press associated with bad practices and insider trading can be damaging, and for a company like Coinbase, it is not what is needed as they aim to be a positive precedent setting crypto solution.
It is negative news that is being picked up by some influencers in the community as Tone Vays, Host of CryptoScam podcast, points out how much of their energy and funds are going to just keep afloat with all the legal battles.
Wow, so looks like there is a Second Class Action Lawsuit filed filed against @coinbase on the same day (this one over employee profits from #BCash). No wonder they have no Money to support @bitcoincoreorg it's all going to defense lawyers:https://t.co/bUGhydfL9z https://t.co/dUN6S9A95f— Tone Vays [#Bitcoin] (@ToneVays) March 3, 2018
One aspect, that they have dealt with before, and have had to deal with again this week, is the rumors that they would be introducing RIpple to the exchange. They have again vehemently denied this, which has had its effect on the Ripple Price.
The company quashed the rumors this time in another blog post by Armstrong as he stated:
“As of the date of this statement, we have made no decision to add additional assets to either GDAX or Coinbase. Any statement to the contrary is untrue and not authorized by the company.”
The effect of this rumor, and then the quashing of it, showed quite prominently in Ripple’s price graph, but, as Matt Odell on Twitter, surmises, Ripple may well still make its way to Coinbase in the same manner in which Bitcoin Cash appeared on the exchange.
Coinbase just tweeted to squash the rumor they are adding Ripple. Can you spot where the tweet went out?— Matt Odell (@matt_odell) March 5, 2018
For what it's worth, I wouldn't be surprised if Coinbase still adds XRP anyway. They tweeted something similar right before ninja launching BCH. pic.twitter.com/H9zpIHlHod
The blog post goes further to outline the process that Coinbase follows when making a decision to add a new coin to its stable, and as one can imagine, it is not a simple process. Coinbase faces a lot of scrutiny and has many watchful eyes on them when making big calls, and thus it is up to them to make sure it is executed perfectly, for their own well-being, and that of the entire crypto market.
It is not all doom and gloom for Coinbase as they look to put out fires along the way. The most recent move by the exchange is to move them in somewhat of a different direction, offering weighted index fund for cryptocurrencies. What this means is that, for US citizens, there is a chance for investors to exposure to all assets listed on the company's current exchange, GDAX, depending on their market capitalization.
This is a step in a slightly different direction for Coinbase as they expand their market to reach those who are perhaps more akin to traditional investments, broadening the net and amalgamating crypto and traditional assets.
Still, as with the fires they are trying to put out in the lawsuits, the Index fund has been met with mixed reviews.
Managing partner at Full Tilt Capital, a venture capital firm and real estate solutions company that has its eyes on crypto, Anthony Pompliano, believes this is a crossing over of traditional and crypto investors.
Coinbase just announced an Index Fund product.— Pomp ? (@APompliano) March 6, 2018
The race is on for the retail crypto investor.
However, the move is confusing to Meltem Demirors, vice president at Digital Currency Group as she states the same thing can be achieved on the Coinbase platform without the need for the two percent charge.
interesting to see @coinbase launch a crypto index fund that has a mix of the 4 assets you can easily buy on their platform. 2% fee. so many investment products coming to market, but none differentiated... someone give me a sincoin index! https://t.co/fUOtwYMAYI— Meltem Demirors (@Melt_Dem) March 7, 2018
Frank Chaparro, a well-regarded cryptocurrency writer for Business Insider also drew people to the fact that this move by Coinbase is one that is aimed at “tap[ping] Wall Street's appetite for cryptocurrency” in a tweet that linked to his article.
"We are seeing new investors coming to the market because they see an asset that is not correlated and outperforms, but they don't know which ones to buy.”— Frank Chaparro (@fintechfrank) March 7, 2018
Read more about .@coinbase’s new index fund, here: https://t.co/LhGeU1gKFd pic.twitter.com/7YB2kX7LH2
Eyes on Coinbase
Like it or not, Coinbase’s prominence as a cryptocurrency platform, in a country with such high media coverage as the US, puts it in the public eye, and as such, it garners attention from all sides. Even other platforms are keeping an eye on what Coinbase does, and how it handles certain situations, in order to navigate their own way through the unprecedented cryptocurrency ecosystem.
Mati Greenspan, the senior market analyst of trading platform eToro, mentions how even though they are based in the UK, the two companies work together somewhat in order to keep abreast of things such as regulations and trends.
“In the UK, we work with Coinbase and other leading platforms and exchanges through Crypto UK, a self-regulatory trade body designed to set standards for the industry, so it’s a collegiate relationship.”
As Coinbase continues to try and set a bar of expectation for cryptocurrency services, it faces an uphill battle against regulators and broaching new territory. However, it is important to have established pioneers, but ones that can be trusted, working to define this new ecosystem and industry, even if it is simply to lay a workable path down.