Risk & Compliance

Coinbase Fined $6M Over Crypto Trade Reporting

The CFTC says the exchange misrepresented the volume and liquidity of digital assets including bitcoin on its GDAX cryptocurrency exchange platform.
Matthew HellerMarch 22, 2021

Coinbase has agreed to pay $6.5 million to settle charges that it misrepresented the volume and liquidity of digital assets including bitcoin on its GDAX cryptocurrency exchange platform.

In an administrative order, the Commodity Futures Trading Commission faulted Coinbase’s reporting of transaction information from January 2015 to September 2018.

According to the commission, Coinbase improperly reported transactions between accounts it owned, potentially resulting in “a perceived volume and level of liquidity of digital assets, including bitcoin, that was false, misleading, or inaccurate.”

The settlement announced on Friday covers the reporting of those transactions as well as an allegation that a former Coinbase employee engaged in “wash trading” in August through September 2016 to create “the misleading appearance of liquidity and trading interest” in the Litecoin digital currency.

“Reporting false, misleading, or inaccurate transaction information undermines the integrity of digital asset pricing,” Vincent McGonagle, the CFTC’s acting director of enforcement, said in a news release.

Coinbase has been preparing to go public through a direct listing that is now scheduled for next month. The CFTC’s action “supports claims made by cryptocurrency skeptics that wash trading and similar practices give an artificially inflated appearance of interest or activity in a given digital asset,” Benzinga said.

Wash trading refers to entering into transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position.

According to the CFTC, the Coinbase employee’s wash trades sometimes made up a substantial percentage of daily trading volume in the contract, ranging from as little as 0.62% to as much as 99.0%.

A Coinbase spokesman said the settlement “does not include any finding of harm to any Coinbase customer” and stressed that the exchange “has always aimed to create a reliable and secure trading environment for the benefit of our customers.”

The CFTC alleged that two Coinbase trading platforms, Hedger and Replicator, matched orders with one another in certain trading pairs but failed to disclose in its reporting of the transactions that it was operating more than one trading program and through multiple accounts.