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Why Coinbase Stock Collapsed Today

The Motley Fool logo The Motley Fool 9/22/2022 Jon Quast
Why Coinbase Stock Collapsed Today © Provided by The Motley Fool Why Coinbase Stock Collapsed Today

What happened

Shares of Coinbase Global (NASDAQ: COIN) collapsed on Thursday. As of 2:45 p.m. ET, the stock was down more than 7%. To be fair, the market is generally down today, and a 7% drop isn't out of the ordinary. However, the market may be responding negatively to a troubling report today -- a report already refuted by Coinbase.

So what

According to The Wall Street Journal this morning, Coinbase once made a $100 million speculative cryptocurrency trade. The company was looking to generate revenue from actively trading cryptocurrencies instead of simply generating revenue from when its customers trade. The article says this was "proprietary trading."

This is an incredibly problematic statement for two reasons. First, Coinbase told the U.S. Congress in December that it doesn't do proprietary trading. Second, as a cryptocurrency exchange, there's a potential conflict of interest. It could potentially front-run its customers if it was buying and selling for its own benefit. 

Coinbase consequently published a blog post refuting The Wall Street Journal this morning. That said, it did acknowledge that it buys cryptocurrencies. However, these aren't intended to generate short-term profits, according to the company. Rather, these purchases are for other things, including the "corporate treasury and operational purposes."

Now what

The debate about Coinbase's trading activity does renew investors' fears regarding U.S. regulation. However, there was also some encouraging news for Coinbase on the regulatory front today. The Netherlands just approved the company's services.

By itself the Netherlands likely won't be a significant market for Coinbase. However, it is encouraging for shareholders who are hoping for growth from many avenues, including ongoing international expansion. 

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coinbase Global, Inc. The Motley Fool has a disclosure policy.

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