In an effort to ease concerns about the effects of a liquidity crisis in the sector on its company, Coinbase said that it has no counterparty exposure to many bankrupt crypto businesses.
The heads of Institutional Trading, Credit, and Market Risk for the publicly listed cryptocurrency exchange said in a blog post that the company has “no financial exposure” to insolvent businesses Three Arrows Capital, Voyager Digital, or Celsius Network.
On Wednesday, the price of the company’s shares increased by more than 14%.
According to the corporation, “many of these enterprises were overleveraged with short-term obligations mismatched against longer-term illiquid assets.”
“We have refrained from engaging in these dangerous lending tactics in favor of establishing our finance company cautiously and purposefully with the customer in mind,” it said.
According to the business, “solvency concerns surrounding entities like Celsius, Three Arrows Capital (3AC), Voyager, and other similar counterparties were a reflection of inadequate risk controls, and reports of additional struggling firms are fast becoming stories of bankruptcy, restructuring, and failure.” Notably, the problems, in this case, were predictable and were more credit-specific than crypto-specific.
While Coinbase denied having any credit exposure to Celsius, 3AC, and Voyager, it claims that via its venture capital business, it did make “non-material investments” in Terraform Labs, the Singapore-based organization that was responsible for the failed stablecoin project Terra.
Coinbase is using the update to convince investors that it won’t go the same way as some of its competitors. Since the beginning of 2022, the company’s price has fallen about 70% as the Federal Reserve’s interest rate increases spooked investors in both equities and cryptocurrencies.
Since the death of Terra, a so-called “algorithmic” stablecoin that attempted to maintain a $1 value via coding, the cryptocurrency market has been in a state of chaos. At Celsius and 3AC, two businesses that made hazardous crypto bets using borrowed money, this resulted in liquidity problems.
Early on Wednesday, Coinbase stock was up as much as 7%, adding to previous gains that have seen the price increase by more than 30% so far this month. However, year-to-date, shares are still down more than 65%.
The Coinbase rise coincides with a larger uptick in the cryptocurrency market; early on Wednesday, bitcoin (BTC-USD) traded over $24,000 for the first time since mid-June, helping to drive a wide rebound in cryptocurrency prices. The leading digital currency in the world has still lost around 50% of its value this year.