Coinbase Turmoil? Top Exchange Caught with New Problems

Major cryptocurrency exchange Coinbase has found itself facing a growing number of issues legally, financially and politically.

Legal Troubles

Let’s start with the legal issues – a class-action lawsuit has been presented to Coinbase and its CEO Brian Armstrong under the accusation that several of its cryptocurrency offerings are possibly considered securities. 

According to a piece by Luc Olinga in The Street, plaintiffs Louis Oberlander, Henry Rodriguez and Christopher Underwood have stated that 79 tokens offered by Coinbase, dating back to October 2019, can be classified as securities. Coinbase, a publicly listed company in addition to a crypto exchange, would therefore need to be registered with the SEcurities and Exchange Commission (SEC) if they are in fact offering users securities. 

The plaintiffs allege in their suit that, “[W]hat Coinbase has not disclosed is that the tokens are in fact securities, and Coinbase is selling these securities despite the fact that there is no registration statement in effect for these securities and despite the fact that Coinbase has refused to register either as a securities exchange or as a broker-dealer”. The suit goes on to say that because of “Coinbase’s sale of these tokens violates both federal and state law, plaintiffs, individuals and on behalf of all persons or entities who transacted in the tokens on the Coinbase Platform bring claims to recover damages, consideration paid for tokens, and trading fees, together with interest thereon, as well as attorneys’ fees and costs, to the fullest extent permitted by law”. 

The lawsuit seeks to obtain approximately $5 million dollars in damages to compensate investors who lost money. Included in the list of tokens include popular projects such as Solana, Dogecoin and Avalanche. 


Short Position

To add to possible financial woes, Jim Chanos, founder of Kynikos Associates stated in an interview with CNBC that he has shorted the Coinbase stock:

“Coinbase is what we would call one of the bubble stocks/ Obviously, it’s got a unique market niche as the, pretty much the only public crypto exchange and consequently has the valuation to go with it”, Chanos notes.

It’s unclear whether Chanos is bearish on the entire crypto industry or using Coinbase as a vehicle considering his point about it being the only publicly traded crypto exchange.

Chanos further notes, “We think as competition increases amongst the exchanges, you’re going to see fee compression and as it is Coinbase will probably not be profitable this year”. 

Crypto vs. Russia

Coinbase is also under political scrutiny in light of geopolitical events transpiring in Ukraine after the Russian invasion. According to the same piece by Luc Olinga, Coinbase is facing increasing pressures to block the accounts of Russian users in response to American and European sanctions on Russia. There is growing concern among Western governments that Russian users are channeling funds through decentralized cryptocurrencies and freezing accounts on popular platforms like Coinbase can prevent some of that from happening. Binance CEO CZ was recently interviewed on the same topic and reinforced the idea that Binance is a platform that does not act like a government and cannot unilaterally choose which user accounts are frozen. You can find more information on Binance’s response here

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