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Coinbase says it had no exposure to bankrupt firms Celsius, Voyager, or Three Arrows Capital

·Senior Reporter
·2 min read
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Coinbase (COIN) said Wednesday it had no financial exposure to the three crypto firms that have recently filed bankruptcy, shaking the crypto industry.

In a blog published Wednesday morning, the publicly-traded crypto exchange's heads of Institutional Trading, Credit and Market Risk stated that the company had "no financing exposure" to bankrupt firms Three Arrows Capital, Voyager Digital or Celsius Network.

In a footnote, Coinbase did disclose "non-material investments in Terraform Labs," the technology developer firm behind the more than $50 billion Terra ecosystem which collapsed in May after its stablecoin TerraUSD faced a bank run.

A Coinbase spokesperson told Yahoo Finance in an email Wednesday morning: "Coinbase Ventures has invested in over 300 projects to date, including a broad range of defi projects. We made a small minority investment in Terraform Labs in 2020 and have not been actively involved in the operations of the company."

According to data from Crunchbase, Coinbase Ventures was involved in a $25 million funding round for Terraform Labs back in January 2021, which was led by Galaxy Digital.

People watch as the logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton
People watch as the logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton

In its blog post, Coinbase argued these bankruptcies would mark a "major inflection point for the industry."

"Solvency concerns surrounding entities like Celsius, Three Arrows Capital (3AC), Voyager, and other similar counterparties were a reflection of insufficient risk controls, and reports of additional struggling firms are fast becoming stories of bankruptcy, restructuring, and failure," the company wrote. "Notably, the issues here were foreseeable and actually credit specific, not crypto specific in nature."

Likening the market collapse since the Terra ecosystem's implosion to poor risk management, the authors compared the crypto scenario to well known leverage induced blowups from the traditional financial sector such as "Long Term Capital Management in the 1990s, Lehman Brothers in the 2000s and even Archegos Capital Management in 2021."

"Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by 3AC meant that risk was too high and too concentrated," the company wrote. "Ultimately, it may still take time for the broader industry to learn the right lessons from the systemic deficiencies we have seen."

Shares of Coinbase were up as much as 7% early Wednesday, adding to recent gains that have seen the stock rise more than 30% this month. Year-to-date, however, shares remain down more than 65%.

The rally in Coinbase also comes amid a broader turnaround in the crypto space, with bitcoin (BTC-USD) trading above $24,000 early Wednesday for the first time since mid-June.

Coinbase is set to report its latest quarterly earnings on August 9 after the market close.

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