Coinbase Had No Financial Exposure to Troubled Celsius, Three Arrows Capital, Voyager

Publicly traded cryptocurrency exchange Coinbase (COIN) had no financing exposure to crypto lender Celsius Network, hedge fund Three Arrows Capital or crypto broker Voyager Digital, according to a Coinbase blog post on Medium on Wednesday. All three troubled firms are seeking bankruptcy protection.

“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,” wrote Coinbase Institutional head Brett Tejpaul, Prime finance head Matt Boyd and Credit and Market Risk head Caroline Tarick.
“The shocks to the crypto credit environment over the last few weeks are likely to be a major inflection point for the industry,” wrote the group. “Notably, the issues here were foreseeable and actually credit specific, not crypto specific in nature. Many of these firms were overleveraged with short-term liabilities mismatched against longer-duration illiquid assets.”
However, in a footnote to the post, the group said that while Coinbase “does not have counterparty exposure” to Celsius, Three Arrows and Voyager, “Coinbase’s venture program did make non-material investments in Terraform Labs.”
The crypto industry has been hit this year with the $40 billion collapse of Terraform Labs algorithmic stablecoin terraUSD (UST) and its sister coin LUNA in May, a British Virgin Islands court ordering the liquidation of Three Arrows Capital at the beginning of July followed by Voyager Digital seeking bankruptcy protection, and Celsius seeking bankruptcy protection on July 13 with a $1.3 billion hole in its balance sheet.
Despite Coinbase avoiding counterparty risk from the three companies, the publicly traded crypto exchange has still been significantly hurt by the sharp decline in crypto prices, with shares plunging nearly 74% year to date. In May, Coinbase said it would scale back hiring, which was followed by rescinded job offers and plans to cut 18% of the global workforce. Ratings agency Moody’s downgraded Coinbase’s corporate debt late last month on profitability concerns.

UPDATE (July 20, 2022 15:45 UTC): Adds footnote information from Coinbase's blog post.

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Brandy Betz

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