In an attempt to assuage fears about the impact of a liquidity crisis in the industry on its business, Coinbase said it was not exposed to several collapsed crypto firms.
Celsius, Three Arrows Capital and Voyager Digital did not have financing exposure to Coinbase, the company said in a blog post Wednesday. As a result of a plunge in digital token prices, each firm filed for bankruptcy protection.
The company’s shares closed up more than 14% on Wednesday.
“Many of these firms were overleveraged with short-term liabilities mismatched against longer duration illiquid assets,” according to the company.
“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 company said.
Coinbase denies any exposure to Celsius, 3AC, or Voyager, but it says it made non-material investments in Terraform Labs, the company behind the failed stablecoin Terra, through its venture capital business.
Coinbase is updating its website to assure investors it will not suffer the same fate as some of its peers. Since the start of 2022, the company’s stock has fallen roughly 70% as investors in both crypto and stocks shook at interest rate hikes by the Federal Reserve.
There has been a state of disarray in the crypto market ever since Terra, a so-called “algorithmic” stablecoin, failed to maintain $1 value using code. The result was liquidity issues at Celsius and 3AC, two companies that used borrowed funds to undertake risky crypto trades.
Investors began taking funds out of firms such as Celsius and 3AC this year as cryptocurrencies dropped. The value of assets held by such companies dropped, making it impossible for them to process redemption requests. Celsius, Voyager, and other companies stopped withdrawals and eventually filed for bankruptcy.
The world’s top digital coin rose above the $24,000 mark Wednesday, surpassing the mark for the first time in over a month. Bitcoin is still down roughly 50% year to date.
With an expected hike in interest rates next week, investors hope the Fed will be less aggressive than previously feared.
With tighter monetary policy, central banks are aiming to tame inflation, which has spooked stocks and other risky assets, including crypto, which benefited from a flood of stimulus during the Covid-19 pandemic.
