That makes no sense. TFA says

> In response to new guidance from the Commodity Futures Trading Commission

Coinbase has always been trying to follow all the laws and show how "legal" crypto can be. If the CFTC says they don't like it then Coinbase is going to shut it down... maybe they'll try to fight it behind the scenes - but they want to stay online and making money.

If they were going to lie, there are a lot better ways to go about it than blaming a government regulatory agency which probably will be fairly open to saying "Yes, we did ask them to close their margin trades because XYZ"

The "new" guidance was issued over 6 months ago...

Whatever their reasons, it's clear that it wasn't the CFTC's guidance that made them suddenly pull the plug.

Maybe, maybe not.

I could kind of see them having conversations with a regulatory authority for a few months, trying to see if there's a way to keep having the product.

Then, when it's clearly "Nope, not going to happen", they shut it down. That could take ~6 months with extended negotiations.

But why would "liquidity problems" cause outages? It's not like their servers require liquidity to operate or something. It makes much more sense that their servers are going down because trade volumes are up, thereby causing server load to go up.

I believe OP is saying when they can't cover orders, they pull the plug on the market rather than be overexposed.

As far as server load goes up, by how much does it need to increase to cause a problem? Are the numbers feasable, eg 100x volumes?

> I believe OP is saying when they can't cover orders, they pull the plug on the market rather than be overexposed.

I still have trouble picturing how this conspiracy would work. I assume it involves coinbase pumping bitcoin prices with money that they don't have. They pump it all the way up, realize "oh shit we don't have enough real money to cover the fake money", and then pull the plug to stop the bleed? Can't they decide ahead of time how much money they can safely spend and stop accordingly? Why do they need to halt trading? If they stop pumping, and the price continues to rise, that doesn't cause them to lose any more money, because it's just other people trading with other people.

>As far as server load goes up, by how much does it need to increase to cause a problem? Are the numbers feasable, eg 100x volumes?

It's kind of hard to tell just by looking at the charts. Just because trade volume is low doesn't mean load on the order matching engine is low. If you spam the trading engine with tons of non-marketable orders, nothing will get executed (no volume), but the order matching engine will still have to wade through those orders.

> I still have trouble picturing how this conspiracy would work.

Not saying that Coinbase does this, but incoming wires/ACH/whatever continue to roll in during an outage, but they can stop the initiation of any outgoing xfers, and then be slow with them claiming a backlog.

A big Canadian exchange, quadrigacx that blew up ~2 years ago was doing all sorts of tricks like this. Their bankruptcy is still ongoing, but somehow ~9 dollar in 10 went missing. The other 1 of 10 was frozen by a bank and eventually returned as $5m bank drafts that no bank would accept.

Kinda like "Your money is in Bill's house, and Fred's house", except Bill and Fred didn't have houses.

>Not saying that Coinbase does this, but incoming wires/ACH/whatever continue to roll in during an outage, but they can stop the initiation of any outgoing xfers, and then be slow with them claiming a backlog.

That would only make sense if coinbase was down for several days at a time. If it was only down for a few hours then that's nearly not enough time for enough money to flow in (aren't wire transfers batched per day rather than processed in real time?). It also doesn't answer my earlier question of "why don't they just stop pumping before they run out of money?".

>A big Canadian exchange, quadrigacx that blew up ~2 years ago was doing all sorts of tricks like this.

Perhaps that's exactly what's happening at coinbase, but pointing to them being down when there's high trading volume isn't a convincing argument.

> If it was only down for a few hours then....

All depends how stuck they are.

When it comes to bitcoin exchanges, there really is no need for conspiracy theories - there have been multiple high profile stories of very large players engaged in fraud, embezzlement, and duplicitous price fixing, and they are completely unregulated.

Your confidence in coinbase, given they are unregulated in any meaningful way, is IMO misplaced.

>Your confidence in coinbase, given they are unregulated in any meaningful way, is IMO misplaced.

I think you're reading too much into my comment. I wasn't trying to claim that cryptocurrency exchanges didn't engage in shady behavior, I was only claiming that the specific accusation of "they halted trading because of liquidity issues from their pumping" didn't make any sense.

You are incorrect. Coinbase regularly gets audited practically every other week by some random regulating body in the country. I’d say ask someone who works there, but you probably won’t as calling any Crypto exchange as ‘Bitcoin’ exchange is something that died off around 2015.

> When it comes to bitcoin exchanges, there really is no need for conspiracy theories

You're saying you don't think that any existing exchanges are conspiring (or have conspired) to defraud?

> there have been multiple high profile stories of very large players engaged in fraud, embezzlement, and duplicitous price fixing, and they are completely unregulated.

Doesn't this make such theories more plausible, not less?

It's not plausible. They don't play a role in "covering orders" aside from providing settlement. That's the job of market makers, who will be less willing to participate after outages.

The outages aren't related to insufficient liquidity and only hurt Coinbase.

It just depends how much capacity they provision. You could overprovision by 10000% like you suggest, or 50%. You can scale based on demand but it’s normal to have a lag.

Certain components cannot be scaled by just adding more machines. For example, scaling a matching engine is slightly more involved than that.

Or a typical writable database. Resharding data may not be feasible at all during a high load event.

Exactly this yes and as for where I heard it Twitter and several crypto forums. It’s a rumour not a fact and I do concede that Hanlons razor probably applies.

Where did you read this rumor? I'm interested in the details (I know about the downtimes)

fractional reserve rumors are pervasive and nonstop for custodial exchanges

there isnt really a source necessary

nobody has any insight until they do

Exactly this yes. I heard this on Twitter and occasionally on several different crypto forums when there’s been an outage during a price surge. I’m not saying this is definitive but the pattern is nonetheless concerning. I get service incidents happen but the timing always seems weird. That could be sample bias though.

In my opinion, the next custodial exchange to explode isn't a matter of if, but when, when, [...] and when.

This doesn't make sense. Their exchanges are open to view live, you can literally see the books and the available liquidity.

I didn’t think this was possible with standard coinbase. Maybe with coinbase pro you can see the order book but that could in theory be manipulated. If there’s something that easily disproved it I would be interested to see if yo don’t mind sharing.

How could their order book be manipulated?

They're unregulated, so the answer is "in any way they like".

They can't remove real liquidity because then the individual posting an order will realize. They can't add fake liquidity because then the individual who attempts to lift the ghost order will realize.

So how can they do this without getting caught (and they haven't been caught - firms like Alameda are watching closely)?

This sounds like one of those things that's easy to just exclaim but is lacking a mapping to anything specific

Trying to tie it to real liquidity is a strawman. They don't need to manipulate the order book for USD/BTC conversions. They can manipulate options, trades between different crypto currencies, futures and the like.

Here's an article about spoofing and market manipulation of real money in regulated excanges: https://ankura.com/insights/spoofing-market-manipulation-and...

This quote from the above article, does not apply to crypto exchanges so far as I know:

"Rules govern how trading is done. Laws prohibit manipulative trading practices on both securities and futures exchanges."

"To date, no cryptocurrency exchange has registered with the SEC" from https://medium.com/semadaresearch/should-cryptocurrency-exch...

> They can't add fake liquidity because then the individual who attempts to lift the ghost order will realize.

...Unless there's magically someone filling it just before they do (i.e. frontrun by an internal bot) every time they try. I have observed exchanges doing this. I don't believe that Coinbase is one of them, though, as others have pointed out with their positioning they are better of not to.

FTX does a lot of digging into this I think CB are one of the legit ones

You didn’t really answer his question though.

it depends on if the how is functional or espistmelogical.

Posting rumors like this without any evidence is irresponsible.