A popular digital-coin exchange isdrawing scrutiny from U.S. regulators over a June flash crash that erased most of the value in thesecond-largest cryptocurrency before traders had time to blink their eyes.
The Commodity Futures Trading Commission has requested information from Coinbase Inc. about a June 21 incident on its GDAX platform in which the ether digital token suffered a precipitous drop, falling to 10 cents from $317.81 in milliseconds before quickly recovering, said two people familiar with the matter.
Among the issues the agency is focused on is what role leverage might have played in the plunge, as Coinbase allowed traders to use borrowed money to make bigger wagers than would have otherwise been possible, said the people, who asked not to be named because the review isnt public.
The CFTC inquiry is the latest sign that federal authorities aregrowing worried about a market with scattershot oversight that has attracted big money. Coinbase, which says it has served 10.6 million customers and facilitated $20 billion in digital currency transactions, is regulated by various states through a patchwork system.
Its not registered with the CFTC, the main U.S. watchdog of currency futures. Coinbase doesnt allow traders to buy and sell derivatives, and firms dont typically fall under the regulators direct jurisdiction unless they allow swaps trading. Coinbase does hold licenses with financial agencies in dozens of states, as well as Puerto Rico, according to its website.
The CFTC sent San Francisco-based Coinbase a letter with a list of questions, including queries about margin trading, one of the people said. Coinbase began offering margin accounts in March, as it sought to attract institutional investors by providing them loans to amplify their bets. The company disabled the service after the June crash.
As a regulated financial institution, Coinbase complies with regulations and fully cooperates with regulators, the company said in an emailed statement. 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.
CFTC spokeswoman Erica Elliott Richardson declined to comment.
Coinbases ether plunge was caused by a single $12.5 million trade — one of the biggest ever — that prompted selling by other investors. The decline triggered automatic sell orders from traders whod requested to bail on the currency if prices dropped to certain levels, and led GDAX to liquidate some margin trades.
While the drop was dramatic, it was also temporary. Computer algorithms quickly started issuing buy orders that drove prices back up to $300 within 10 seconds.
Bitcoin and other cryptocurrencies have surged this year. But regulators and financial executives are concerned that investors are inflating a bubble thats destined to pop. South Korea banned margin trading in bitcoin and ether Sept. 29 after China earlier cracked down on digital currencies. Last month, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon likened cryptocurrencies to the infamous Dutch tulip bulb mania of the 17th Century.
The Securities and Exchange Commission has been grappling with how to police digital currencies. SEC Chair Jay Clayton warned lawmakers last week that initial coin offerings are probably full of fraud. The next day, the agency sued a company for misrepresentations tied to a bitcoin offering purportedly backed by diamonds and real estate.
One risk of allowing margin trades is that in a sharp market reversal, trading platforms could run into problems if investors cant repay the money theyve borrowed.
Thats what happened in January 2015 when the currency brokerage FXCM Inc. almost toppled after Switzerland shocked markets by letting its currency appreciate. When the franc jumped, FXCM customers lost more money than they had in their accounts, forcing the company to seek a $300 million bailout from Leucadia National Corp.
Coinbases GDAX had a margin funding limit of $10,000.To qualify, investors had to meet at least one of several qualifications laid out under federal law.
For instance, individuals can only trade with borrowed money if they have more than $5 million invested in various financial markets and are using their margin accounts purely to hedge risks. Individuals are exempt from the hedging requirement if they have more than $10 million invested. The rules are looser for institutional investors, such as hedge funds and corporations.
Last year, the CFTC sanctioned a different digital token market, Bitfinex, for allowing investors who didnt meet the $10 million threshold to make margin trades. Bitfinex also broke the law because it didnt deliver some bitcoins that investors had bought using leverage within a required timeframe, the CFTC said. Instead, it held the tokens in accounts that it owned and controlled, according to the regulator. Bitfinex agreed to pay $75,000 to settle the case, without admitting or denying the allegations.
Coinbase has suffered outages and other performance problems as its struggled to handle the surge in volume thats accompanied skyrocketing cryptocurrency prices. It has also faced a sharp increase in customer complaints. Almost 500 consumer grievances have been flagged about the company this year on a database maintained by the Consumer Financial Protection Bureau, compared with just six for all of 2016.
Coinbase and investors who use it to trade have piqued regulators interest in the past. In 2016,the Internal Revenue Service asked a court for permission to serve a summons against Coinbase, seeking records about taxpayers who have traded digital currencies.
It also has attracted prominent investors including Marc Andreessens venture capital firm and the New York Stock Exchange. In August, Coinbase received $100 million from a group led by Institutional Venture Partners, a Menlo Park, California-based venture capital firm.
With assistance by Nick Baker, and Matthew Leising
See original here:
Cryptocurrency Flash Crash Is Said to Draw Scrutiny From CFTC …
- Cryptocurrency Definition | Investopedia - December 6th, 2017
- '$300m in cryptocurrency' accidentally lost forever due to bug ... - November 10th, 2017
- Amazon might want in on cryptocurrency - mashable.com - November 8th, 2017
- What is Cryptocurrency - earnlite.com - October 26th, 2017
- Cryptojacking Lets Strangers Mine Cryptocurrency With Your ... - October 21st, 2017
- Introduction to Cryptocurrency - CryptoCurrency Facts - October 14th, 2017
- Cryptocurrency Alternatives to Bitcoin - due.com - October 7th, 2017
- Learn BitCoin and master the world of cryptocurrency - October 7th, 2017
- Almost Every Cryptocurrency Is Tanking Right Now | Time.com - September 7th, 2017
- Cryptocurrency boom stalls as regulators focus on ICOs ... - September 7th, 2017
- Why Marketers Need to Pay Attention to Cryptocurrency -- Now - Entrepreneur - September 7th, 2017
- Opinion: That Floyd Mayweather-backed cryptocurrency is another sign of a bursting bubble - MarketWatch - September 7th, 2017
- Putin-Backed Political Group Advances 'Green' Cryptocurrency Concept - CoinDesk - September 7th, 2017
- First He Beat Up His Girlfriend, Now He's Selling Cryptocurrency With Paris Hilton - Daily Beast - September 7th, 2017
- Cryptocurrencies have already recovered from last weekend's crash ... - TechCrunch - September 7th, 2017
- Venezuela Cracks Down On Cryptocurrency Mining - CryptoCoinsNews - September 4th, 2017
- Mobius Foresees Cryptocurrency Crackdown Sparking a Rush to Gold - Bloomberg - September 4th, 2017
- The Aggregate Cryptocurrency Market Cap Is Up 810% Year to Date - Motley Fool - September 4th, 2017
- How to make upwards of $1,000 a month by mining cryptocurrency - Mashable - September 2nd, 2017
- Chinese Officials Contemplate Suspending Cryptocurrency ICOs - The Merkle - September 2nd, 2017
- Cryptocurrency Investment Course 2017: Fund your ... - Udemy - September 2nd, 2017
- Six Banking Giants Just Decided to Partner to Create a New Cryptocurrency - Futurism - September 2nd, 2017
- 7 Cryptocurrency Predictions From the Experts - fortune.com - September 2nd, 2017
- Russia Could Pass Cryptocurrency Law This Year, Senior Lawmaker Says - CoinDesk - September 2nd, 2017
- AxionV: AI Cryptocurrency Fund Leading the Way in ICO Security - HuffPost - September 2nd, 2017
- PayThink Custom tokens are the future of cryptocurrency - PaymentsSource - September 1st, 2017
- Litecoin Prices Surge Above $70 as Crypto Market Tops $175 Billion - CoinDesk - September 1st, 2017
- Dharma wants to let anyone borrow a small amount of cryptocurrency - TechCrunch - September 1st, 2017
- PR: Archain Is Building an Uncensorable Internet Archive Inside a Cryptocurrency - Bitcoin News (press release) - August 31st, 2017
- Cryptocurrency Market Just Reached Total Value of $160 Billion - Futurism - August 31st, 2017
- Another banking trojan is trying to loot your cryptocurrency wallets - The Register - August 31st, 2017
- Cointal Revolutionizes P2P Cryptocurrency Trading - CryptoCoinsNews - August 31st, 2017
- $160 Billion: Cryptocurrency Market Sets New All-Time High ... - CoinDesk - August 30th, 2017
- Central Banks Can't Ignore the Cryptocurrency Boom - Bloomberg - August 30th, 2017
- Whoppercoin is a cryptocurrency you can eat or trade - The Verge - August 30th, 2017
- Learn about cryptocurrency mining with this interactive blockchain demo - TNW - August 30th, 2017
- Good Morning, Cryptocurrency! Vietnam To Create Legal Framework For Digital Assets - ETHNews - August 26th, 2017
- Cryptocurrency mining may void warranty on Inno3D GPUs - PC Gamer - August 26th, 2017
- Russian Deputy PM Says He Supports a State-Backed Cryptocurrency - CoinDesk - August 25th, 2017
- How to Learn About Cryptocurrency In The Bitcoin Era - Daily Beast - August 25th, 2017
- Bernanke to Give Keynote Speech at October Cryptocurrency Event - Bloomberg - August 25th, 2017
- Estonia wants to launch its own government-backed cryptocurrency called 'estcoin' - CNBC - August 25th, 2017
- Aimwise to Create Standards for Cryptocurrency Crowdsales - newsBTC - August 25th, 2017
- A Mysterious New Cryptocurrency Is Surging After Being ... - August 25th, 2017
- Cryptocurrency Cyber Crime Has Cost Victims Millions This Year - Bloomberg - August 25th, 2017
- This European country may hold an ICO and issue its own ... - TechCrunch - August 23rd, 2017
- Bitcoin Skeptic Mark Cuban to Invest in Cryptocurrency ... - August 23rd, 2017
- $150 Billion: Total Cryptocurrency Market Cap Hits New All-Time ... - CoinDesk - August 23rd, 2017
- Cryptocurrency Market cap Sets a New All-time High of Over $150bn - newsBTC - August 23rd, 2017
- South Africa's Central Bank: It's 'Too Risky' to Launch a Cryptocurrency - CoinDesk - August 23rd, 2017
- Mark Cuban backs new $20 million cryptocurrency venture fund - CNBC - August 22nd, 2017
- VR World Decentraland Raises $25.5 Million In Cryptocurrency - UploadVR - August 21st, 2017
- AMD Releases Beta Graphics Driver for Better Cryptocurrency Mining - Bitcoin Magazine - August 21st, 2017
- Philippines Central Bank Grants First Cryptocurrency Exchange Licenses - CoinDesk - August 21st, 2017
- Media A-Listers Back eSports Betting Firm As It Dives Into Cryptocurrencies - Deadline - August 20th, 2017
- 10 Reasons Why Central Banks Will Miss the Cryptocurrency Renaissance - CoinDesk - August 20th, 2017
- Australia Weighs Jail Time for Cryptocurrency Exchange Offenders - CoinDesk - August 20th, 2017
- Cryptocurrency wallet Exodus adds OmiseGo in latest update - CryptoNinjas - August 20th, 2017
- SEC Statements Spur ShapeShift to Review Cryptocurrency Listings - CoinDesk - August 20th, 2017
- Australian money cops gain powers to regulate cryptocurrency - The Register - August 18th, 2017
- Could Cryptocurrencies Replace Cash? - Investopedia - August 18th, 2017
- NVIDIA CEO Believes Cryptocurrencies Have Longevity - Investopedia - August 18th, 2017
- Substratum Launches Substrate Cryptocurrency to Power the New Decentralized Web - The Merkle - August 18th, 2017
- More Evidence that Cryptocurrencies Are a Bubble? - Investopedia - August 16th, 2017
- Cryptocurrency Exchange ShapeShift Acquires Bitcoin Wallet Startup - CoinDesk - August 16th, 2017
- Canada Approves First Cryptocurrency Sale in Property Rights Shake-Up - Voice of America - August 16th, 2017
- From UFC To Fighting Fake News With Cryptocurrency - SportTechie - August 16th, 2017
- Will the Bitcoin Fork Continue to Boost the Cryptocurrency's Value? - TheStreet.com - August 16th, 2017
- 'Father of Financial Futures' Seeks Cryptocurrency Hardware Patent - CoinDesk - August 14th, 2017
- How Exactly Do You Get Rich Off The Hot New Cryptocurrency? - Gizmodo Australia - August 14th, 2017
- Ripple Price Forecast: Factors Suggest XRP Cryptocurrency ... - August 13th, 2017
- US Foreign Sanctions Bill Mandates That Governments Monitor Cryptocurrency - Bitcoin News (press release) - August 13th, 2017
- What Would Happen if Cryptocurrency Became More Popular Than Cash? - Futurism - August 13th, 2017
- $126 Billion: The Cryptocurrency Market Just Set a New All-Time High - CoinDesk - August 12th, 2017
- Ukraine's Central Bank Moves Closer to Cryptocurrency Regulation - CoinDesk - August 12th, 2017
- Nvidia shares fall on data center revenue but chips ride cryptocurrency boom - Reuters - August 12th, 2017
- For Cryptocurrencies, the Future is Now - Daily Reckoning - August 11th, 2017
- Nvidia more bullish on cryptocurrency than AMD - MarketWatch - August 11th, 2017
- Coinbase Becomes First Bitcoin 'Unicorn' - Fortune - August 11th, 2017
- Buoyant Bitcoin stirs fears of a crypto-currency bubble bursting - The Independent - August 10th, 2017