Despite fears about the impact of a liquidity crisis in the industry on Coinbase, the company said it had no counterparty exposure to several collapsed crypto firms. In a blog post published Wednesday, Coinbase stated that it had no financial exposure to Celsius, Three Arrows Capital, and Voyager Digital. As a result of a plunging price of digital tokens, each company filed for bankruptcy protection. This triggered a cascade of liquidations among highly leveraged companies. Shares of the company closed up more than 14% on Wednesday. “Many of these firms were overleveraged with short-term liabilities mismatched against longer duration illiquid assets,” the company said. “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,” it added.
While Coinbase denied any credit exposure to Celsius, 3AC, or Voyager, it is reporting that its venture capital business made “non-material investments” in Terraform Labs, the Singapore-based company behind the failed stablecoin Terra. The update is an attempt by Coinbase to reassure investors that it will not suffer the same fate as some of its peers. Since the beginning of 2022, the company’s share price has plummeted by approximately 70% due to interest rate hikes by the Federal Reserve. Since the demise of Terra, an “algorithmic” stablecoin that attempted to maintain a $1 value by utilizing code, the crypto market has been in disarray. This resulted in liquidity issues at Celsius and 3AC, two companies that made risky crypto investments using borrowed funds. With the decline in cryptocurrency prices this year, investors sought to withdraw their funds from firms such as Celsius and 3AC. These companies could not process redemption requests due to the decline in the value of the assets they held. Consequently, Celsius, Voyager, and other companies halted withdrawals before eventually filing for bankruptcy.