It is now two days since the New York Attorney General released a report damning crypto with faint praise and accusing Coinbase of trading against its own customers. The response from Coinbase and other US based exchanges has been swift and clear: The report is welcomed as a starting point for discussion, but shows only a crude understanding of the space and how exchanges work, a problem only exacerbated by dumbed down articles and clickbait headlines put out by mainstream media.
In the Virtual Markets Integrity Report published by the Office of the New York State Attorney General (OAG) this week, the state sought to summarize the state of crypto and crypto trading in the US.
It is an extensive document, which seeks to introduce the crypto exchange market to traders in more traditional markets, as well as to laymen. At the same time the report contains a lot of interesting information that would be time consuming or difficult to hunt down on your own.
Is Coinbase Trading Against its Own Customers?
In compiling this report, the OAG asked US exchanges to voluntarily submit a variety of information, including what percentage of trade is done by accounts under the control of the exchanges themselves. In the report, special mention was given to Coinbase, which was singled out as trading against its own customers, accounting for some 20% of their total trade volume.
This, Coinbase replies in an open letter released on September 20, 2018, is just plain false, and the OAG is misrepresenting the information given to it.
While ~20% of the volume may come from ‘accounts under Coinbase control’, it is not Coinbase actively trading against its own customers, but rather other Coinbase users, who make sales and purchases through Coinbase Consumer, a trading app which fetches limit orders from the main exchange and executes trades on behalf of users. Coinbase employees have no involvement in these trades, and the exchange makes no profit on the trades beyond the standard trading fees.
Kraken Accused of Operating Illegally
Also on the chopping block in the OAG report was Kraken, whose CEO Jesse Powell recently likened New York state to an abusive ex who just won’t leave you be.
NY is that abusive, controlling ex you broke up with 3 years ago but they keep stalking you, throwing shade on your new relationships, unable to accept that you have happily moved on and are better off without them. #getoverit https://t.co/DC5S1WyRnp
— Jesse Powell (@jespow) September 19, 2018
Powell does have reason to be unhappy with the OAG – although Kraken is not based in New York, regulators there require oversight for any exchanges that even have customers in the state.
Kraken claims not to allow customers from NY, but the OAG concluded there is a high likelihood such customers exist nevertheless, and forwarded the matter to the Department of Financial Services for further investigation. Also referred were Gate.io and Binance, who have yet to publicly comment on the matter.
