Coinbase, in its statement, has said that it has no opposition party in a contract to the number of crypto firms falling. It has said so pertaining to the liquidity crisis in the industry.
The cryptocurrency exchange has no-financing exposure to Celsius and Three Arrows Capital. On Wednesday, it released a blog informing the market of its “no-financing exposure.”
Many firms in the market have filed for bankruptcy protection. The reason for the same is the sudden drop in digital coin prices. The cryptocurrency prices are set off by the big downfall of liquidations at high leveraged positions.
The share price of Coinbase closed at more than 14% on Wednesday. It is a great increase in the value of the shares of the company due to its blog release.
The company clearly states that it has no credit exposure with Celsius, Voyager and 3 AC. However, it has made a “non-material investment” in Terraform Labs.
Terraform Labs is a Singapore-based company. It has a failed stablecoin project named Terra, using its venture capital business.
Coinbase says, “ Many of these firms were overleveraged with short-term liabilities mismatched against longer duration illiquid assets. We have not engaged in these types of risky lending practices and instead have focused on building our financing business with prudence and deliberate focus on the client.”
The update by Coinbase is taken as an assurance to its clients, as many of its peer exchange firms are collapsing.
The stock value of Coinbase has fallen by 70% since the start of 2022. The reason is a hike in the interest rate by the Federal Reserve.
The announcement of the increase in interest rates is taken as an alert by crypto and stock market investors.
The shift in the value of Terra has brought a situation of disarray among traders. Terra is an algorithmic stablecoin. So, the coin tried maintaining the value of $1 using the code. But, it led to liquidity issues among the two companies.
The companies include Celsius and 3 AC. The two made risky crypto gambling using borrowed money.
So, when the cryptocurrency market started falling this year. Investors started taking their funds out of companies like Celsius and 3AC. But, as the price of assets dropped, the companies were not able to redeem the fund requests.
Hence, the companies paused the withdrawals and applied for bankruptcy protection.
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