CFTC Orders Coinbase Inc. To Pay $6.5M Penalty(cftc.gov)
cftc.gov
CFTC Orders Coinbase Inc. To Pay $6.5M Penalty
https://www.cftc.gov/PressRoom/PressReleases/8369-21
148 comments
You heard it here - with this enforcement action, bitcoin is now safe.
No currency is safe if you mistake it for an investment.
All these actions and far more are widely done by less scrupulous bitcoin exchanges.
Seems a bit unfair on coinbase when pretty much everyone else is doing this stuff deliberately, whereas they are being punished for a seemingly accidental case of the same.
Seems a bit unfair on coinbase when pretty much everyone else is doing this stuff deliberately, whereas they are being punished for a seemingly accidental case of the same.
"According to the order, between January 2015 and September 2018, Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin, on the GDAX electronic trading platform it operated. During this period, Coinbase operated two automated trading programs, Hedger and Replicator, which generated orders that at times matched with one another. The GDAX Trading Rules specifically disclosed that Coinbase was trading on GDAX, but failed to disclose that Coinbase was operating more than one trading program and trading through multiple accounts.
In addition, the order finds that while Hedger and Replicator had independent purposes, in practice the programs matched orders with one another in certain trading pairs, resulting in trades between accounts owned by Coinbase."
Doesn't sound very accidental.
In addition, the order finds that while Hedger and Replicator had independent purposes, in practice the programs matched orders with one another in certain trading pairs, resulting in trades between accounts owned by Coinbase."
Doesn't sound very accidental.
The worst part is at the bottom:
> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin.
We always knew that wash trading activity was rampant in the cryptocurrency space, but I didn't actually expect Coinbase employees to be doing it within Coinbase. If employees of the most regulated exchange in the world were wash trading with some regularity, makes you wonder how bad it must be at some of the more Wild West exchanges.
> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin.
We always knew that wash trading activity was rampant in the cryptocurrency space, but I didn't actually expect Coinbase employees to be doing it within Coinbase. If employees of the most regulated exchange in the world were wash trading with some regularity, makes you wonder how bad it must be at some of the more Wild West exchanges.
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(Devil's advocate disclaimer) I worked in High Frequency Trading for a TBTF bank alongside the former Automated Trading Desk employees and spoke with their quants a few times.
And I literally worked on a Dark Pool Crossing Engine myself at the the time, and here's my take:
Having multiple algorithms running at the same time was...unremarkable. And since they're all running different algorithms and all trying to game the market, it wouldn't surprise me if they ended up trading with each other by accident, especially if they had multiple accounts to trade with. What's honestly more surprising is that they only had two running at once. And further, if they both traded through a dark pool, then there's no way they could know they were trading with each other, because that's one of the intended features of a dark pool.
So accidental seem plausible, but then again so does malice.
Now if it wasn't through a dark pool, and the algos could see each other's accounts, then naughty naughty, and they deserved every cent of the fine.
And I literally worked on a Dark Pool Crossing Engine myself at the the time, and here's my take:
Having multiple algorithms running at the same time was...unremarkable. And since they're all running different algorithms and all trying to game the market, it wouldn't surprise me if they ended up trading with each other by accident, especially if they had multiple accounts to trade with. What's honestly more surprising is that they only had two running at once. And further, if they both traded through a dark pool, then there's no way they could know they were trading with each other, because that's one of the intended features of a dark pool.
So accidental seem plausible, but then again so does malice.
Now if it wasn't through a dark pool, and the algos could see each other's accounts, then naughty naughty, and they deserved every cent of the fine.
Sorry but I have to disagree strongly here.
Having two separate algos directly and actively trading in the wild is highly unusual.
There are obvious reasons for which you don't want your algos to trade one against the other on the market.
First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
But more directly for simple execution costs/fees reasons.
I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
Having two separate algos directly and actively trading in the wild is highly unusual.
There are obvious reasons for which you don't want your algos to trade one against the other on the market.
First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
But more directly for simple execution costs/fees reasons.
I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
>Having two separate algos directly and actively trading in the wild is highly unusual.
No it's not. ATD had like 50.
>There are obvious reasons for which you don't want your algos to trade one against the other on the market.
Who said they're trading against each other? Just look at GME. Swapping shares back and forth makes trading volume go up.
Every imbalance is gameable, and they have armies of people whose job is to find every gameable imbalance and make money off of it.
>First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
As we've seen when traders have bankrupted themselves.
>I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
Well I know of one that had 15+, and coinbase just got busted with two so...
No it's not. ATD had like 50.
>There are obvious reasons for which you don't want your algos to trade one against the other on the market.
Who said they're trading against each other? Just look at GME. Swapping shares back and forth makes trading volume go up.
Every imbalance is gameable, and they have armies of people whose job is to find every gameable imbalance and make money off of it.
>First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
As we've seen when traders have bankrupted themselves.
>I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
Well I know of one that had 15+, and coinbase just got busted with two so...
I'm not of this realm, but you've convinced me that dark pools are harmful, and intentionally so.
One reason for it is so that Citigroup can't see that Goldman Sachs is buying 500K of some stock and fuck over retail investors by buying up theirs cheaply and selling to GS.
They're not evil, just another tool.
I don't (and won't) work for them again, but there were non-evil reasons for a dark pool.
Anonymous trading (dark pools) also prevents favoritism and collusion too. You're trading based on nothing but the price and public information about the company. So it's less gameable.
They're not evil, just another tool.
I don't (and won't) work for them again, but there were non-evil reasons for a dark pool.
Anonymous trading (dark pools) also prevents favoritism and collusion too. You're trading based on nothing but the price and public information about the company. So it's less gameable.
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It's understandable that exchange participants run multiple algorithms but what about the exchange itself? Why would it run any trading algorithms at all?
If you know who that employee is, and how litecoin got to get listed on coinbase, the story will make more sense to you.
Coinbase is playing by the rules, that's why they are not shut down but got a small fine.
All other exchanges will probably shut down and their operators might even get jail time.
Coinbase is playing by the rules, that's why they are not shut down but got a small fine.
All other exchanges will probably shut down and their operators might even get jail time.
It’s easy to imagine that this anonymous employee may be Charlie Lee, creator of Litecoin.
The timeline for people who aren't familiar with this story:
Oct 2011: Charlie Lee created Litecoin
Jul 2013: Charlie Lee went to work for Coinbase
Aug 2016: GDAX (now known as Coinbase Pro) added support for Litecoin
Aug-Sep 2016: An unnamed Coinbase employee manipulated Litecoin trading volume on GDAX
May 2017: Coinbase retail added support for Litecoin, which doubled in price immediately
Jun 2017: Charlie Lee left Coinbase (presumably having accomplished his goal of getting Litecoin listed)
Dec 2017: Charlie Lee sold all his Litecoin near the all-time high
Oct 2011: Charlie Lee created Litecoin
Jul 2013: Charlie Lee went to work for Coinbase
Aug 2016: GDAX (now known as Coinbase Pro) added support for Litecoin
Aug-Sep 2016: An unnamed Coinbase employee manipulated Litecoin trading volume on GDAX
May 2017: Coinbase retail added support for Litecoin, which doubled in price immediately
Jun 2017: Charlie Lee left Coinbase (presumably having accomplished his goal of getting Litecoin listed)
Dec 2017: Charlie Lee sold all his Litecoin near the all-time high
Shhh.
> Seems a bit unfair on coinbase when pretty much everyone else is doing this stuff deliberately
"Everyone else is doing it" was never a valid excuse.
This statement suggests that at least one Coinbase employee was acting very deliberately. No accidents here. Why would an exchange need to trade from multiple accounts with multiple uncoordinated bots in the first place?
"Everyone else is doing it" was never a valid excuse.
This statement suggests that at least one Coinbase employee was acting very deliberately. No accidents here. Why would an exchange need to trade from multiple accounts with multiple uncoordinated bots in the first place?
Because literally every prop trading firm in the world runs more than one algorithm??? The same way you have more than one unit test file?
This is a mosquito bite. They are a 50+ billion dollar company. When a company this big breaks the law it would be crazy to not enforce it on them.
Most of those unscrupulous exchanges are not in the US. I’m personally a bit surprised there hasn’t been more heat on Poloniex, though.
No, everyone else isn't doing it.
Haven't seen evidence of the big ones doing it - Bitmex, Binance, etc. FTX has good analysis on this.
Haven't seen evidence of the big ones doing it - Bitmex, Binance, etc. FTX has good analysis on this.
Never believe an analysis in crypto unless you are knowledgeable enough to replicate it yourself.
I am, and it's easy to check yourself.
Queue a single lot in the queue and observe that your fill is exactly when you expect. If they were generating fake trades it would be obvious since there would be trades that don't lead to you getting filled when you should be getting filled.
If instead they were actually wash trading on the real market (not just generating fake trades, which is the most common approach), that would be much harder to detect with any kind of forensic analysis of the data, you'd need some whistle-blower. However, doing this would be impossible in a liquid asset like BTCUSD or LTCUSD.
Queue a single lot in the queue and observe that your fill is exactly when you expect. If they were generating fake trades it would be obvious since there would be trades that don't lead to you getting filled when you should be getting filled.
If instead they were actually wash trading on the real market (not just generating fake trades, which is the most common approach), that would be much harder to detect with any kind of forensic analysis of the data, you'd need some whistle-blower. However, doing this would be impossible in a liquid asset like BTCUSD or LTCUSD.
> Seems a bit unfair on coinbase
Nah, the opposite. It’s a small financial slap on the wrist, and in exchange they get to be absolved of their past sins and be declared squeaky clean. New competitors will need to be perfect from the get-go.
Nah, the opposite. It’s a small financial slap on the wrist, and in exchange they get to be absolved of their past sins and be declared squeaky clean. New competitors will need to be perfect from the get-go.
Hardly. This only covers activity through summer of 2018.
This fine does, but presumably this has come about as part of a wider audit
The point is law enforcement and regulatory agencies move really, really slowly - they generally like to take time building strong cases, even when misconduct is fairly evident. This activity dates back 3-5 years, and is only being publicly announced now. What's happened since then?
> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin. Coinbase is therefore found to be vicariously liable as a principal for this employee’s conduct.
If I’m reading this right, the employee had a program interfering with GDAX generating dummy orders filled by itself. To other customers, would look like real liquidity on the platform but it was astroturfing.
Was this “fake it till you make it” or something more manipulative? Or perhaps just a lone employee trying to pump Litecoin for their own profit?
If I’m reading this right, the employee had a program interfering with GDAX generating dummy orders filled by itself. To other customers, would look like real liquidity on the platform but it was astroturfing.
Was this “fake it till you make it” or something more manipulative? Or perhaps just a lone employee trying to pump Litecoin for their own profit?
Charlie Lee (the creator of Litecoin) quit Coinbase in 2017, and he owned most Litecoins in existence, and he was the director of engineering there. (I don't have any non-public information though, so take what I wrote just as general information).
I don’t believe that he owned most Litecoins. That said, considering Lee publicly sold at the top of the last bubble, could this be smoking gun to a pump and dump scheme?
> could this be smoking gun to a pump and dump scheme?
Brokers do this all the time. It's not really something unusual as you might think.
Brokers do this all the time. It's not really something unusual as you might think.
The statement sounds as though the employee was deliberately generating the appearance of liquidity and demand by placing wash trades. It's mind boggling that this would happen at one of the most regulated exchanges in the world.
Cryptocurrency is like the wild west of finance, but I expected at least Coinbase was playing fair. Apparently not.
Cryptocurrency is like the wild west of finance, but I expected at least Coinbase was playing fair. Apparently not.
You say that like this stuff does not happen in other regulated contexts: https://www.fca.org.uk/news/press-releases/fca-fines-and-pro...
Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Like, what you would not want to see is a "regulated" market where the regulators never find anything bad going on.
Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Like, what you would not want to see is a "regulated" market where the regulators never find anything bad going on.
> You say that like this stuff does not happen in other regulated contexts
I didn’t say anything about other regulated contexts? The regulations and enforcement agency exists because this was happening long before cryptocurrency.
Cryptocurrency is just uniquely positioned to support techniques like wash trading because it’s much easier to create multiple wallets and transfer funds around in ways that obscure the origin.
“Everyone else is doing it” isn’t an excuse.
I didn’t say anything about other regulated contexts? The regulations and enforcement agency exists because this was happening long before cryptocurrency.
Cryptocurrency is just uniquely positioned to support techniques like wash trading because it’s much easier to create multiple wallets and transfer funds around in ways that obscure the origin.
“Everyone else is doing it” isn’t an excuse.
> Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended?
Debatable, as most criminal activity in our society carries with it something more deterring than simply a fine. Having to write a check is what happens when you get sued and lose (a civil issue).
Debatable, as most criminal activity in our society carries with it something more deterring than simply a fine. Having to write a check is what happens when you get sued and lose (a civil issue).
I think you meant to say 'one of the most regulated cryptocurrency exchanges in the world', in which case this isn't so surprising because the exchanges and currencies in that space are a mess of unregulated and downright fraudulent actors who actively deceive their customers and try to avoid scrutiny (bitfinex is another recently). We should not be surprised by this, it is the norm, and much more fraud and self-dealing will come to light after this bubble bursts.
Interviewed there once. Would not work there or keep my money there, bunch of jokers.
More info dave...
I don't think this is the place to discuss details, let's just say I walked away unimpressed by the business and the people I spoke with.
More info dave...
Note that this is 2016 Coinbase. Not 2021, getting ready for IPO, Coinbase.
Yeah. Now there is more money in this ipo thing ...
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Explicitly, 2015 through 2018.
> deliberately generating the appearance of liquidity and demand by placing wash trades
What’s bad about that? (not concern trolling, just a noob)
What’s bad about that? (not concern trolling, just a noob)
If millions of people bought and sold a widget in the last week for ~$10, you can be pretty confident that the widget is (currently) worth around $10.
If one person bought or sold a widget in the last week for $10, you might have a lot less certainty about the actual value of the widget.
If one person bought or sold a widget in the last week for $10, you might have a lot less certainty about the actual value of the widget.
If two people bought and sold the same widget for $10 a million times, that would be neither a wash trade, nor much more informative than one person buying and selling a widget for $10, right? But the trading volume metric would look the same as if millions of people were buying and selling.
Strangely this isn't in fact true. It feels like it should be, but just because something has been consistent historically is not evidence that that's going to continue into the future.
That's not relevant, though - except in the most trivial way of the problem of induction[0]. Technically, we can't be sure the sun will rise tomorrow, or that gravity will still work the same way 5 minutes from now. Neither can we be sure the market will not collapse next week. But this way lies madness - reasoning about the future is impossible. Fortunately, experience consistently demonstrates that if we have a good model of something, reality tends to stick to it, so we can use it to predict things.
With nihilism out of the way, how is million people independently trading a thing for $10 once meaningfully different than a single buyer/seller pair trading a thing for $10 a million times?
A price of an item isn't a random phenomenon - it's just a reflection of what buyer and seller believe other people would pay for that item. This belief is based mostly on knowledge of what other people actually paid for it (or a similar widget) in the past. This process is mostly convergent[1]. Prices change at the rate of information flow, and tend toward some equilibrium. The process may be quite unpredictable, but the expectations are bounded.
As a result, markets automatically price everything relative to everything else, in a way that mostly makes sense. This is a very useful property - it's a bottom-up, implicit, somewhat fair way of solving resource allocation problem in society.
Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation, and thus less useful to society. It's pissing in the pool from which everyone drinks.
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[0] - https://en.wikipedia.org/wiki/Problem_of_induction.
[1] - Or perhaps "consilient", which is a nice word I just discovered - https://en.wikipedia.org/wiki/Consilience.
With nihilism out of the way, how is million people independently trading a thing for $10 once meaningfully different than a single buyer/seller pair trading a thing for $10 a million times?
A price of an item isn't a random phenomenon - it's just a reflection of what buyer and seller believe other people would pay for that item. This belief is based mostly on knowledge of what other people actually paid for it (or a similar widget) in the past. This process is mostly convergent[1]. Prices change at the rate of information flow, and tend toward some equilibrium. The process may be quite unpredictable, but the expectations are bounded.
As a result, markets automatically price everything relative to everything else, in a way that mostly makes sense. This is a very useful property - it's a bottom-up, implicit, somewhat fair way of solving resource allocation problem in society.
Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation, and thus less useful to society. It's pissing in the pool from which everyone drinks.
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[0] - https://en.wikipedia.org/wiki/Problem_of_induction.
[1] - Or perhaps "consilient", which is a nice word I just discovered - https://en.wikipedia.org/wiki/Consilience.
> A price of an item isn't a random phenomenon - it's just a reflection of what buyer and seller believe other people would pay for that item. This belief is based mostly on knowledge of what other people actually paid for it (or a similar widget) in the past.
It's even more helpful than that. It shows that a million people valued widgets at $10 or more, and a million others valued them at $10 or less. So if you value it at $10, you won't be too wrong.
With some assumptions about liquidity and the depth of pocket of market makers, you can draw some further conclusions like "not many people could have valued it at $12 or more".
It's even more helpful than that. It shows that a million people valued widgets at $10 or more, and a million others valued them at $10 or less. So if you value it at $10, you won't be too wrong.
With some assumptions about liquidity and the depth of pocket of market makers, you can draw some further conclusions like "not many people could have valued it at $12 or more".
> how is million people independently trading a thing for $10 once meaningfully different than a single buyer/seller pair trading a thing for $10 a million times?
> Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation...
I'm not a legal or markets scholar, so please excuse this possibly dumb question.
Why are wash trades specifically harmful, as opposed to book orders that don't self-trade?
Like, I think what Coinbase did not get in trouble for here was having a large order book that they did not intend to trade (spoofing), but they instead got in trouble for trading with themselves at prices they would have traded with any other market participant. (Seemingly, as a fluke of the way they structured their market-making apparatus as two separate bots, instead of a single bot.) Since this was on a public market, the trades inherently happened somewhere between the public bid and ask prices -- right? I don't understand how the self-trades manipulate the price information. The fakeness that comes out of this seems to be purely the metric of trading volume.
If I'm wrong, please let me know! I'd love to learn more. Thanks.
> Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation...
I'm not a legal or markets scholar, so please excuse this possibly dumb question.
Why are wash trades specifically harmful, as opposed to book orders that don't self-trade?
Like, I think what Coinbase did not get in trouble for here was having a large order book that they did not intend to trade (spoofing), but they instead got in trouble for trading with themselves at prices they would have traded with any other market participant. (Seemingly, as a fluke of the way they structured their market-making apparatus as two separate bots, instead of a single bot.) Since this was on a public market, the trades inherently happened somewhere between the public bid and ask prices -- right? I don't understand how the self-trades manipulate the price information. The fakeness that comes out of this seems to be purely the metric of trading volume.
If I'm wrong, please let me know! I'd love to learn more. Thanks.
> just because something has been consistent historically is not evidence that that's going to continue into the future
The technical term is precedent transactions. Less technically, more observations of a thing increases confidence that the thing exists.
It does not guarantee that the thing will continue to exist. But then again, nothing does. (We “know” the sun will rise tomorrow because it rose yesterday and the day before that.)
The technical term is precedent transactions. Less technically, more observations of a thing increases confidence that the thing exists.
It does not guarantee that the thing will continue to exist. But then again, nothing does. (We “know” the sun will rise tomorrow because it rose yesterday and the day before that.)
I feel like it's 100% accurate to say 1,000,000 transactions within the last week gives you more confidence than 1 transaction within the last week as to the current market price.
It's not a statement about the future, it's about the present. You should indeed be more confident that 10 is the right price right now if you see a load of people near you in time and space trading at 10.
It is evidence, clearly, it’s just not a guarantee.
1- It makes an exchange appear more liquid than competitors, even though it isn't, which gives it an advantage. Customers are tricked into signing up to what they believe is a liquid exchange. It's false advertising.
2- It could trick customers into executing larger trades than what the liquidity is capable of handling without price impact, but this is a more minor point to the above.
2- It could trick customers into executing larger trades than what the liquidity is capable of handling without price impact, but this is a more minor point to the above.
Without liquidity, an asset is worthless. If it's quoted as being worth $100, but there are no actual buyers, it isn't actually worth $100.
You could spoof a large order book without ever wash-trading with yourself (this is not legal advice). The specific regulation is around self-trades. If there is a lot of orders around $99.98 and $100.02 you can be pretty confident something is worth about $100 even if it never trades.
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The liquidity is not there. You might be enticed to buy litecoin since you can be sure to be able sell it anytime without much slippage and then be surprised that there are no buyers.
They weren't spoofing the order book, right? You would look not just at trade volume, but also the bid interest, when considering future liquidity, I think. And that information was all accurate, to my knowledge. (I might be totally wrong! Would love to learn more.)
In addition to screwing with price discovery, it also inflates Coinbase Pro’s volumes and makes the exchange look like a better place to trade. Crypto exchanges are often ranked/judged by their volumes.
It makes people think the asset is more valuable than it really is.
"one of the most regulated exchanges in the world"
Is this sarcasm?
Is this sarcasm?
They meant one of the most regulated cryptocurrency exchanges. I don't think that's sarcastic. Try to cite a few that are significantly more regulated.
I don't think the statement is fair/correct because we don't know whether it is regulated well/properly at all. We have nothing to compare/benchmark basically, so why call it the "most regulated" one?
Alright that would be fair then
Implicit in the statement is that this is relative, by the extremely low standard of bitcoin exchanges.
>It's mind boggling that this would happen at one of the most regulated exchanges in the world.
I think you're misinterpreting what you are reading.
This is not coinbase doing anything, this is an employee taking action on their own, likely not even on company time or on company property.
That said, the company is still responsible for the employees' actions, especially because it relates directly to their job.
I think you're misinterpreting what you are reading.
This is not coinbase doing anything, this is an employee taking action on their own, likely not even on company time or on company property.
That said, the company is still responsible for the employees' actions, especially because it relates directly to their job.
> This is not coinbase doing anything
Per the article: "Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets"
Per the article: "Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets"
From another article - https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m... -
“Importantly, the CFTC is not alleging that any Coinbase customers were harmed or that any wrongdoing occurred. Rather, it’s describing the activity as reckless but not intentional. This activity is no longer occurring, the CFTC said Friday.”
The behaviour described otherwise is clearly intentional, so Coinbase’s PR seems to be trying to whitewash their history.
It makes me believe my hypothesis that Coinbase deliberately (through purposeful neglect or action) allows or causes the platform to become inaccessible to users when Bitcoin price starts to skyrocket - to block and prevent impulse "HODLers" from selling, allowing enough time for the impulse of many to quell, among other consequences; I'd be curious if Coinbase collects login attempt data during this time, failed logins, or if their whole website including login system is also down.
The behaviour described otherwise is clearly intentional, so Coinbase’s PR seems to be trying to whitewash their history.
It makes me believe my hypothesis that Coinbase deliberately (through purposeful neglect or action) allows or causes the platform to become inaccessible to users when Bitcoin price starts to skyrocket - to block and prevent impulse "HODLers" from selling, allowing enough time for the impulse of many to quell, among other consequences; I'd be curious if Coinbase collects login attempt data during this time, failed logins, or if their whole website including login system is also down.
When you "fake it till you make it" in applications involving other people's money, i'm pretty sure that's just fraud.
I mean, market manipulation can't be illegal on crypto is it?
I thought the whole point of crypto was anarchy and decentralization? Maybe it's time for Reddit to hype up some coin so that the fines can be covered?
I thought the whole point of crypto was anarchy and decentralization? Maybe it's time for Reddit to hype up some coin so that the fines can be covered?
Preventing a single individual from manipulating trading activity is a basic control for a trading platform. It's a failure of the company regardless of whether the employee acted alone or not.
CoinBase is one of the last exchanges which still allow sending and receiving crypto. Others like RobinHood only allow trading, while LocalBitcoins and Kraken disabled sending/receiving for NY and WA this year.
I really hope they survive. I don't know what's the future for crypto if we can no longer send or receive actual coins anymore.
It becomes meaningless to just buy and sell without ever being able to "own" the coins.
I really hope they survive. I don't know what's the future for crypto if we can no longer send or receive actual coins anymore.
It becomes meaningless to just buy and sell without ever being able to "own" the coins.
>CoinBase is one of the last exchanges which still allow sending and receiving crypto
You should prefix this with "in America". In Asia excluding China the industry's quite healthy, with a bunch of exchanges available. The "future of crypto" in America will just be to use a good VPN.
You should prefix this with "in America". In Asia excluding China the industry's quite healthy, with a bunch of exchanges available. The "future of crypto" in America will just be to use a good VPN.
I regularly send and receive on Gemini. Cash App as well, though it's more of a vendor than an exchange.
If you can’t withdraw a cryptocurrency from an exchange you’re trading a “cryptocurrency index”, not the currency itself.
Not always (in some countries like Germany trading an index would be pretty bad for taxation reasons) - they really just don't give you an option to withdraw. Likely it's just way easier and cheaper to secure their wallets that way.
Payment networks are being built on Ethereum that will allow much more than just sending / receiving in a peer to peer decentralized way at low cost
https://starkware.co/ https://optimism.io/ https://www.immutable.com/
https://starkware.co/ https://optimism.io/ https://www.immutable.com/
FTX.us surely has crypto deposits and withdrawals
You do realize they are facilitating money laundering right?
You do realise that the creation of the crime of "money laundering" and government attempts to crack down on it have been completely and utterly ineffective, with the illicit drug market being larger than ever (and money laundering laws failing completely to stop the creation of terrorist groups like Isis)? What they have achieved is facilitating unpredecented violation of citizens' financial privacy and massively inconveniencing small businesses, while having zero impact on the ability of the elites to engage in corruption.
It will never be possible to completely stem the flow of profits from crime to clean money, or from clean money to terrorist groups. But I think the best metric of how well the efforts are working is to listen to the market and look at how much it costs to launder money. IIRC the book Lying for Money by Dan Davies had the figure as high as 50%, which is a pretty darn high transaction cost; if AML efforts didn’t work nobody would be paying it.
What good is Coinbase other than as a way to exchange crypto for dollars? If crypto is to ever have any meaning, then it shouldn't need to interface with the financial system that it aims to upend.
How else would you obtain crypto if it wasn't by exchanging it with other fiat currency? Mining hasn't been realistic for many years now. It costs the same as a single BTC in electricity cost to mine one, assuming you have the mining hardware.
Buying and selling 'assets' on the Darkweb and amongst people you know in other countries with restricted foreign money transfer is one main use case of CoinBase.
In fact, I doubt BTC would have thrived as much as it did if it wasn't for SilkRoad/DarkMarket/EmpireMarket/WhiteHouseMarket etc. Not to mention the hundreds of millions that went into worse endeavors like ransomeware and funding terror organizations.
BTC didn't become what it is without the billions of dollars in demand for those very real use cases. Each drug dealer exchanges tens and hundreds of thousands of USD in crypt, much more than the average regular crypto enthusiast. BTC investors are investing in blood money, like it or not. It's not just a magic computer token thingy, and it hasn't been for a decade now since the SilkRoad inception.
Buying and selling 'assets' on the Darkweb and amongst people you know in other countries with restricted foreign money transfer is one main use case of CoinBase.
In fact, I doubt BTC would have thrived as much as it did if it wasn't for SilkRoad/DarkMarket/EmpireMarket/WhiteHouseMarket etc. Not to mention the hundreds of millions that went into worse endeavors like ransomeware and funding terror organizations.
BTC didn't become what it is without the billions of dollars in demand for those very real use cases. Each drug dealer exchanges tens and hundreds of thousands of USD in crypt, much more than the average regular crypto enthusiast. BTC investors are investing in blood money, like it or not. It's not just a magic computer token thingy, and it hasn't been for a decade now since the SilkRoad inception.
How about good old working for it. I’ve received payment in Bitcoin and paid employees in cryptocurrency.
The thing about fungible assets is that they are neutral money. They aren’t “blood money”, they are simply blind to whatever they are used for. At least they aren’t finding wars like the dollar.
The thing about fungible assets is that they are neutral money. They aren’t “blood money”, they are simply blind to whatever they are used for. At least they aren’t finding wars like the dollar.
> At least they aren’t finding wars like the dollar.
Plenty of the drug trade BTCs goes to funding the cartels in Columbia and Mexico actually.
Source: Tried buying BTC on LocalBitcoins once and 9/10 of the US sellers were asking to send Western Union to Columbia. Meanwhile, we know from the government that a lot of the BTC payments on dark markets end up in the drug dealer hands in Columbia. So, apparently they sell the drug BTC back to us at the higher exchange rate for USD so we can give it back to them for drugs, back and forth....
Plenty of the drug trade BTCs goes to funding the cartels in Columbia and Mexico actually.
Source: Tried buying BTC on LocalBitcoins once and 9/10 of the US sellers were asking to send Western Union to Columbia. Meanwhile, we know from the government that a lot of the BTC payments on dark markets end up in the drug dealer hands in Columbia. So, apparently they sell the drug BTC back to us at the higher exchange rate for USD so we can give it back to them for drugs, back and forth....
> cartels in Columbia and Mexico
Which are only economically viable due to the US "war on drugs" and draconian prohibitions, which we've managed to export across the world via our foreign policy. Which brings us full circle back to the US dollar funding wars.
It's as though unethical people exist who are willing to do bad things with whatever they have to hand if it turns a profit.
Which are only economically viable due to the US "war on drugs" and draconian prohibitions, which we've managed to export across the world via our foreign policy. Which brings us full circle back to the US dollar funding wars.
It's as though unethical people exist who are willing to do bad things with whatever they have to hand if it turns a profit.
You write like illicit drugs is the only product made in Colombia. What about coffee, flowers, chocolate, bananas, palm oil, unrefined oil, and carbon? I feel personally offended.
However, just for clarification, BTC has been in the news very often during the last year. And many people are investing heavily in BTC since then. People who would otherwise never hear of BTC before.
However, just for clarification, BTC has been in the news very often during the last year. And many people are investing heavily in BTC since then. People who would otherwise never hear of BTC before.
> It costs the same as a single BTC in electricity cost to mine one, assuming you have the mining hardware.
You just described how to buy bitcoin privately with electricity. Why is it unrealistic?
You just described how to buy bitcoin privately with electricity. Why is it unrealistic?
Lets do a thought experiment: lets say you wanted $10,000 worth of bitcoin, and it costs an equal amount of electricity to mine. At 10c/kWh, thats 100,000kWh of electricity. There are ~720 hours in a month, so you need to be pulling 138kW 24/7 for a month to use up that much electricity. Is that realistic for a typical home? (spoiler: no)
I don't have the hardware to mine BitCoins. You need expensive ASICs or at least very powerful GPUs, running 24/7, and you can't mine partial BitCoins. i.e. I won't get 200$ worth of BTC by investing 200$ in electricity.
Even if its possible, it would take days or weeks to get that much BTC. What if you want 2,000$ of BTC right now? Would you want to wait months before you get it?
And electricity cost varies widely between regions. Many areas in the US and China outright ban crypto mining.
https://bitcointalk.org/index.php?topic=347208.0
https://www.politico.com/magazine/story/2018/03/09/bitcoin-m...
https://www.wired.com/story/china-says-bitcoin-wasteful-want...
Even if its possible, it would take days or weeks to get that much BTC. What if you want 2,000$ of BTC right now? Would you want to wait months before you get it?
And electricity cost varies widely between regions. Many areas in the US and China outright ban crypto mining.
https://bitcointalk.org/index.php?topic=347208.0
https://www.politico.com/magazine/story/2018/03/09/bitcoin-m...
https://www.wired.com/story/china-says-bitcoin-wasteful-want...
Sure you can mine partial bitcoins by joining mining pool. This is how everyone is doing that for the last 10 years.
You can buy an older generation ASIC on the secondary market for pretty cheap (usually), and probably mine ~$10 worth of bitcoin/day (by joining a pool). I agree it's not much, but it is permissionless.
If you want to buy large amounts, you would use the P2P markets for fiat to bitcoin trades https://bisq.network/
If you want to buy large amounts, you would use the P2P markets for fiat to bitcoin trades https://bisq.network/
I will never forget the guy (on here) who said, ‘I’m buying a few bitcoin, so if in the future my children ask me, why didn’t you buy when it was cheap dad?’
I was a click away from buying a rig rig a few years ago. I wanted to build the rig because that seemed like the fun part. I even had excess electricity from solar panels, but chickened out.
I thought bitcoin made sense, but listened to the masses? I was always one of those guys whom never took chances with money.
I just might buy a cheap rig tomorrow? I’m so lazy, and broke, I’ll wake up, and put it off?
I was a click away from buying a rig rig a few years ago. I wanted to build the rig because that seemed like the fun part. I even had excess electricity from solar panels, but chickened out.
I thought bitcoin made sense, but listened to the masses? I was always one of those guys whom never took chances with money.
I just might buy a cheap rig tomorrow? I’m so lazy, and broke, I’ll wake up, and put it off?
Everybody wishes they had gotten more serious earlier. I ran testnet. Nice toy, but the fan noise was bothering me. Fast forward to way too darn late. I knew a guy that did get serious, barely. I don’t know how many he had, but he traded 26,000 of the coins from his CPU for some of the first ASIC rigs. Tiny steps in the direction of something you believe in add up. It can be anything.
In the history of Bitcoin apart from the very early days it was always better just get the money you wanted to spend on rig/energy and just buy and hold BTC, unless you wanted to do mining very hands-on.
More like a personality away than a click. People say the same thing every year then don't act on it, won't do it now either.
10$ a day isn't practical at all for investment or online purchases. It's only good if you have a big rig of those to get at least 1,000$/month, but at what electricity and noise cost? I don't think I can run that in a single bedroom apartment with neighbors around.
Bisq sounds interesting, but I have my doubts about them, since there is no escrow system and I don't think there is enough liquidity either. I'll check it out anyway.
Bisq sounds interesting, but I have my doubts about them, since there is no escrow system and I don't think there is enough liquidity either. I'll check it out anyway.
Yeah, I would say mining may not be practical primarily due to the noise. You would need a garage or similar to put the miners in.
Maybe in 2014. Criminals do not use strict us KYC exchanges and trackable bitcoin, that doesn't make much sense. If the onramp isn't anonymous (mining/a bag of cash) you'd be screwed. This one is a bit old my guess is the anonymous cash narrative is even smaller than in this graph: https://medium.com/@nic__carter/visions-of-bitcoin-4b7b7cbcd...
There are P2P alternatives: https://bisq.network/. Low liquidity atm, but that would change if centralised services prevented withdrawals.
You can thank local bureaucrats and their heavy handed regulations (like the Bitlicense) for that.
What is the point of an exchange that doesn't let users deposit and withdraw coins? Their only purpose is trading. All assets should be stored in hardware wallets when not being traded.
Yes. If all exchanges were only for trading, crypto will go bust since you won't be able to use them to buy anything from the real world.
Do people buy real world things with cryptocurrency now? Is this even a requirement? People aren't buying anything with GameStop stock, but it seems to be doing fine.
Those are definitely different things. Owning a GameStop stock gives you a small ownership and right to their profits (in form of dividends) in real money.
Owning a cryptocurrency means nothing if you can't actually use it as a currency in real world.
Owning a cryptocurrency means nothing if you can't actually use it as a currency in real world.
Owning a cryptocurrency gives you the right to exchange it for real money later -- and usually way more money! Speculation is fun, and profitable!
Yes, dark web markets are booming. dark.fail is a good starting point if you want to explore them.
GameStop won't keep increasing for ten years, like crypto did, without some real world fundamentals.
Even in GME case, you have the short sellers as a backbone for its rise, not just buying and selling for the sake of it. Without the short sellers, GME wouldn't have risen up that much.
GameStop won't keep increasing for ten years, like crypto did, without some real world fundamentals.
Even in GME case, you have the short sellers as a backbone for its rise, not just buying and selling for the sake of it. Without the short sellers, GME wouldn't have risen up that much.
>Yes, dark web markets are booming. dark.fail is a good starting point if you want to explore them.
Any decent one is using Monero, which isn't necessarily the target of a ton of speculation, I think.
Any decent one is using Monero, which isn't necessarily the target of a ton of speculation, I think.
Definitely. Personally I only buy flights&hotels (&Amazon via Purse.io) with crypto.
Mostly homes and mortgages for me, not so much tangible objects as ramming a few hundred k back down JP Morgan’s throat.
Disclosure: my sell orders are always higher than the current market rate
Disclosure: my sell orders are always higher than the current market rate
I want to withdraw cryptocurrency to keep the funds safe, not to spend it. Exchanges are single points of failure and we can expect to lose it all if their security is breached.
People seem quite happy to plow money into NFTs, though you can't use them for anything besides selling to a greater fool.
[deleted]
And Coinbase is worth $75 billion. Unless executives start going to actual prison, the smart move is going to be to break the law.
You can't pay fines out of market cap.
This is maybe true in some facile sense, but companies can and do exchange market cap for working capital through ATM offerings[0]. Is there some specific reason companies cannot sell stock to finance fines? (Even if it is disallowed in some regulatory sense -- I am not aware of this -- money is fungible, and I don't believe a single fine prevents future stock offerings.)
[0]: https://en.wikipedia.org/wiki/At-the-market_offering
[0]: https://en.wikipedia.org/wiki/At-the-market_offering
Not a finance guy, so apologies if this is a stupid question:
What about percentage-based fines? I.e. 1% of market cap.
What about percentage-based fines? I.e. 1% of market cap.
The point is that the 'market capitalization' isn't the bank account. It's nothing more than 'share price * number of shares'.
You can try to pay a fine by selling more stock. Or by getting convertible bonds. But there are no guarantees.
You can try to pay a fine by selling more stock. Or by getting convertible bonds. But there are no guarantees.
Right, but the purpose of fines is to disincentivize behavior. If you tied them to a percentage of market cap, rather than a flat fee, it seems likely that you'd get less violations, no?
This is the income-based speeding ticket discussion but for companies instead of people.
Which makes a lot of sense. How is it fair that a speeding ticket costs the same for everyone? For the lower-class, a speeding ticket can mean not being able to afford food for the month. For the upper-class, a speeding ticket can been seen as just the price for driving faster than usual. Laws are supposed to treat us equally, but without considering the income of the one who gets fined, the law is really unfavorable to some while at most a nuisance for others.
> How is it fair that a speeding ticket costs the same for everyone?
It isn’t. Why should I pay the same fines while driving my lamborghini with fresh brakes and tires as the poor people speeding in their deathboxes? My car probably has half the braking distance of theirs.
It isn’t. Why should I pay the same fines while driving my lamborghini with fresh brakes and tires as the poor people speeding in their deathboxes? My car probably has half the braking distance of theirs.
You shouldn't get an advantage on breaking the rules just because you were doing it in a way that is safer. Break rule, get consequence.
Besides, others on the road don't care about how good your brakes are. They just care about what to expect and someone speeding by is not what they expect. And its not like the brakes are gonna help you much if you make a mistake. If anything the extra feeling of safety is gonna make you drive more riskily.
Besides, others on the road don't care about how good your brakes are. They just care about what to expect and someone speeding by is not what they expect. And its not like the brakes are gonna help you much if you make a mistake. If anything the extra feeling of safety is gonna make you drive more riskily.
It depends on what you think the purpose of these laws is. If you think they're supposed to be deterrents, then you're absolutely right. It's not a deterrent for rich people.
The other point of view is that by speeding, you are doing a certain amount of damage to society. Speeding does kill people, so you can spread the cost to society across all speeders. Government agencies regularly put values on human lives (usually around $10 million right now), so it becomes a simple number of people killed * $10 million / number of speeders / rate of speeders being caught. This damage being done, however, is the same no matter how much money you make.
There's a long tradition of seeing the punishment for a crime as making society whole after you've done damage to it (hence the phrase "paying your debt to society" being used to refer to a prison sentence).
The other point of view is that by speeding, you are doing a certain amount of damage to society. Speeding does kill people, so you can spread the cost to society across all speeders. Government agencies regularly put values on human lives (usually around $10 million right now), so it becomes a simple number of people killed * $10 million / number of speeders / rate of speeders being caught. This damage being done, however, is the same no matter how much money you make.
There's a long tradition of seeing the punishment for a crime as making society whole after you've done damage to it (hence the phrase "paying your debt to society" being used to refer to a prison sentence).
you would probably want to target _revenue_, like the GDPR fines do, rather than capitalization.
GameStop should not receive a fine 10 times it's revenue just because some random people pushed its price up 100x.
GameStop should not receive a fine 10 times it's revenue just because some random people pushed its price up 100x.
It should like the actual misbehaviour was that coinbase was running multiple trading algorithms, one to hedge and one to arbitrate between exchanges, and they sometimes incidentally traded against each other.
Running multiple algorithms is as common as writing multiple unit tests. That is standard operating practice.
What is also a common practice is adding a netting layer so that your algorithms internally settle before sending out trades to the market. This is generally done to save trading fees, but it didn't apply to Coinbase because they are also the exchange.
So, overall it sounds like inexperience, not malice.
Running multiple algorithms is as common as writing multiple unit tests. That is standard operating practice.
What is also a common practice is adding a netting layer so that your algorithms internally settle before sending out trades to the market. This is generally done to save trading fees, but it didn't apply to Coinbase because they are also the exchange.
So, overall it sounds like inexperience, not malice.
You need to find out who is the employee in question.
This happens soooo much, and is offered my most exchanges as “liquidity”. But in reality it’s washtrading.
Fake volume which creates demand from the public. It’s what all (early) stakeholders want. Crypto trading in general is such a scam, with the exception of a few of the top ones.
Fake volume which creates demand from the public. It’s what all (early) stakeholders want. Crypto trading in general is such a scam, with the exception of a few of the top ones.
I don't usually have big net positions but I have no trotunle getting filled for a million dollars of some shitcoin at the same price
> "liquidity"
It is cheating the numbers, but it could be moderately beneficial or terrible. If it's actually entered onto the books as liquidity for some time before being consumed, then I guess it could help eliminate slippage, although I think more likely it is matched in the way that puts the desired slippage into customer trades only.
> with the exception of a few of the top ones
like Coinbase?
It is cheating the numbers, but it could be moderately beneficial or terrible. If it's actually entered onto the books as liquidity for some time before being consumed, then I guess it could help eliminate slippage, although I think more likely it is matched in the way that puts the desired slippage into customer trades only.
> with the exception of a few of the top ones
like Coinbase?
[deleted]
“This enforcement action sends the message that the Commission will act to safeguard the integrity and transparency of such information.”
At a paltry 6.5m, the message it sends is “you got away with it.”
At a paltry 6.5m, the message it sends is “you got away with it.”
I think the size of the penalty is an indication that the scale of the illegal activity relative to the total trading volume on Coinbase was probably minimal.
Considering the description of how this happened (two independent trading bots that sometimes matched one another) it sounds more like a lack of controls rather than any malicious intention to deceive markets. And, at least for now, intent matters in our legal system.
Considering the description of how this happened (two independent trading bots that sometimes matched one another) it sounds more like a lack of controls rather than any malicious intention to deceive markets. And, at least for now, intent matters in our legal system.
it sounds like there was two things that happened:
1. What you said. Two bots that lacked controls and interacted with eachother. which may have been accidental
2. A rogue employee intentionally using those bots to fake volume on a specific currency pair. This is actually malicious.
1. What you said. Two bots that lacked controls and interacted with eachother. which may have been accidental
2. A rogue employee intentionally using those bots to fake volume on a specific currency pair. This is actually malicious.