Coinbase's refutes WSJ reports that its Risk Solutions division conducted a $100 million proprietary trade

By: Henry Felix

September 22, 2022 11:00 PM

Coinbase claimed in a blog post that the WSJ mischaracterized a transaction that occurred earlier this year and involved proceeds from the sale of a structured note.

Numbering coins on Coinbase, The Wall Street Journal reports that an employee in the company's Risk Solutions division participated in a $100 million proprietary trade.

There has been some definitional wrangling between the Wall Street Journal and Coinbase. The newspaper has published what it claims is an account of the digital asset exchange's trading activities from earlier this year, which it deems to be proprietary trading. In a blog post, Coinbase stated emphatically that this was not the case.

The Wall Street Journal reported on Thursday, citing information from "people at the company," that Coinbase had executed a $100 million transaction that was seen internally as a test trade even by the company's Risk Solutions group, that had formed for the intent of proprietary trading. The term "proprietary trading" refers to the practice of banks and other financial institutions trading their own money for profit rather than client funds.

The WSJ acknowledged that Coinbase's proprietary trading would not have been illegal, but that it might still be cause for concern. One example is a financial institution that engages in trading that is detrimental to its customers. In a blog post, Coinbase stated, "Coinbase does not operate a proprietary trading business or act as a market maker." However, the company acknowledged that "many of our competitors" do engage in proprietary trading. That's what the blog post said.

"There was an article in the Wall Street Journal about client-driven activities, which the authors mistook for proprietary trading."

The WSJ attributes the controversy to statements made by Alesia Hass, CEO of Coinbase's U.S. subsidiary and chief financial officer of Coinbase Global, in testimony before the United States House of Representatives Committee on Financial Services on December 8, 2021.

The WSJ reported that Coinbase's aforementioned $100 million deal was funded by a structured note bought by Invesco Ltd. at a fixed rate of 4.01%. To the paper's satisfaction, Invesco had also revealed the deal.

To quote Coinbase's Risk Solutions team:

"provides answers to advanced institutional investors looking for exposure to the cryptocurrency asset class. Some of these buyers are still learning the ropes of the crypto market and have asked for our help in hedging their bets and taking part in various protocols. By proceeding in this manner, we are following in the footsteps of Wall Street veterans."

The Wall Street Journal, however, asserted that "Coinbase used the $100 million to profit in cryptocurrency markets, according to the people" who served as its sources.