Charlie Lee (the creator of Litecoin) quit Coinbase in 2017, and he owned most Litecoins in existence, and he was the director of engineering there. (I don't have any non-public information though, so take what I wrote just as general information).

I don’t believe that he owned most Litecoins. That said, considering Lee publicly sold at the top of the last bubble, could this be smoking gun to a pump and dump scheme?

> could this be smoking gun to a pump and dump scheme?

Brokers do this all the time. It's not really something unusual as you might think.

The statement sounds as though the employee was deliberately generating the appearance of liquidity and demand by placing wash trades. It's mind boggling that this would happen at one of the most regulated exchanges in the world.

Cryptocurrency is like the wild west of finance, but I expected at least Coinbase was playing fair. Apparently not.

You say that like this stuff does not happen in other regulated contexts: https://www.fca.org.uk/news/press-releases/fca-fines-and-pro...

Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended? Like, what you would not want to see is a "regulated" market where the regulators never find anything bad going on.

> You say that like this stuff does not happen in other regulated contexts

I didn’t say anything about other regulated contexts? The regulations and enforcement agency exists because this was happening long before cryptocurrency.

Cryptocurrency is just uniquely positioned to support techniques like wash trading because it’s much easier to create multiple wallets and transfer funds around in ways that obscure the origin.

“Everyone else is doing it” isn’t an excuse.

> Without trying to defend Coinbase in particular, isn't the fact that this was caught and punished evidence of the system working as intended?

Debatable, as most criminal activity in our society carries with it something more deterring than simply a fine. Having to write a check is what happens when you get sued and lose (a civil issue).

I think you meant to say 'one of the most regulated cryptocurrency exchanges in the world', in which case this isn't so surprising because the exchanges and currencies in that space are a mess of unregulated and downright fraudulent actors who actively deceive their customers and try to avoid scrutiny (bitfinex is another recently). We should not be surprised by this, it is the norm, and much more fraud and self-dealing will come to light after this bubble bursts.

Interviewed there once. Would not work there or keep my money there, bunch of jokers.

More info dave...

I don't think this is the place to discuss details, let's just say I walked away unimpressed by the business and the people I spoke with.

More info dave...

Note that this is 2016 Coinbase. Not 2021, getting ready for IPO, Coinbase.

Yeah. Now there is more money in this ipo thing ...

Explicitly, 2015 through 2018.

> deliberately generating the appearance of liquidity and demand by placing wash trades

What’s bad about that? (not concern trolling, just a noob)

If millions of people bought and sold a widget in the last week for ~$10, you can be pretty confident that the widget is (currently) worth around $10.

If one person bought or sold a widget in the last week for $10, you might have a lot less certainty about the actual value of the widget.

If two people bought and sold the same widget for $10 a million times, that would be neither a wash trade, nor much more informative than one person buying and selling a widget for $10, right? But the trading volume metric would look the same as if millions of people were buying and selling.

Strangely this isn't in fact true. It feels like it should be, but just because something has been consistent historically is not evidence that that's going to continue into the future.

That's not relevant, though - except in the most trivial way of the problem of induction[0]. Technically, we can't be sure the sun will rise tomorrow, or that gravity will still work the same way 5 minutes from now. Neither can we be sure the market will not collapse next week. But this way lies madness - reasoning about the future is impossible. Fortunately, experience consistently demonstrates that if we have a good model of something, reality tends to stick to it, so we can use it to predict things.

With nihilism out of the way, how is million people independently trading a thing for $10 once meaningfully different than a single buyer/seller pair trading a thing for $10 a million times?

A price of an item isn't a random phenomenon - it's just a reflection of what buyer and seller believe other people would pay for that item. This belief is based mostly on knowledge of what other people actually paid for it (or a similar widget) in the past. This process is mostly convergent[1]. Prices change at the rate of information flow, and tend toward some equilibrium. The process may be quite unpredictable, but the expectations are bounded.

As a result, markets automatically price everything relative to everything else, in a way that mostly makes sense. This is a very useful property - it's a bottom-up, implicit, somewhat fair way of solving resource allocation problem in society.

Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation, and thus less useful to society. It's pissing in the pool from which everyone drinks.

--

[0] - https://en.wikipedia.org/wiki/Problem_of_induction.

[1] - Or perhaps "consilient", which is a nice word I just discovered - https://en.wikipedia.org/wiki/Consilience.

> A price of an item isn't a random phenomenon - it's just a reflection of what buyer and seller believe other people would pay for that item. This belief is based mostly on knowledge of what other people actually paid for it (or a similar widget) in the past.

It's even more helpful than that. It shows that a million people valued widgets at $10 or more, and a million others valued them at $10 or less. So if you value it at $10, you won't be too wrong.

With some assumptions about liquidity and the depth of pocket of market makers, you can draw some further conclusions like "not many people could have valued it at $12 or more".

> how is million people independently trading a thing for $10 once meaningfully different than a single buyer/seller pair trading a thing for $10 a million times?

> Generating fake trades like this? It's injecting bad data into the market. It's poisoning the mechanism of price determination - which, to produce reasonably fair determinations, needs aggregate trades to average great many distinct buyer/seller negotiations. Amplifying a single datum with fake trades ultimately makes the market worse at efficient resource allocation...

I'm not a legal or markets scholar, so please excuse this possibly dumb question.

Why are wash trades specifically harmful, as opposed to book orders that don't self-trade?

Like, I think what Coinbase did not get in trouble for here was having a large order book that they did not intend to trade (spoofing), but they instead got in trouble for trading with themselves at prices they would have traded with any other market participant. (Seemingly, as a fluke of the way they structured their market-making apparatus as two separate bots, instead of a single bot.) Since this was on a public market, the trades inherently happened somewhere between the public bid and ask prices -- right? I don't understand how the self-trades manipulate the price information. The fakeness that comes out of this seems to be purely the metric of trading volume.

If I'm wrong, please let me know! I'd love to learn more. Thanks.

> just because something has been consistent historically is not evidence that that's going to continue into the future

The technical term is precedent transactions. Less technically, more observations of a thing increases confidence that the thing exists.

It does not guarantee that the thing will continue to exist. But then again, nothing does. (We “know” the sun will rise tomorrow because it rose yesterday and the day before that.)

I feel like it's 100% accurate to say 1,000,000 transactions within the last week gives you more confidence than 1 transaction within the last week as to the current market price.

It's not a statement about the future, it's about the present. You should indeed be more confident that 10 is the right price right now if you see a load of people near you in time and space trading at 10.

It is evidence, clearly, it’s just not a guarantee.

1- It makes an exchange appear more liquid than competitors, even though it isn't, which gives it an advantage. Customers are tricked into signing up to what they believe is a liquid exchange. It's false advertising.

2- It could trick customers into executing larger trades than what the liquidity is capable of handling without price impact, but this is a more minor point to the above.

Without liquidity, an asset is worthless. If it's quoted as being worth $100, but there are no actual buyers, it isn't actually worth $100.

You could spoof a large order book without ever wash-trading with yourself (this is not legal advice). The specific regulation is around self-trades. If there is a lot of orders around $99.98 and $100.02 you can be pretty confident something is worth about $100 even if it never trades.

The liquidity is not there. You might be enticed to buy litecoin since you can be sure to be able sell it anytime without much slippage and then be surprised that there are no buyers.

They weren't spoofing the order book, right? You would look not just at trade volume, but also the bid interest, when considering future liquidity, I think. And that information was all accurate, to my knowledge. (I might be totally wrong! Would love to learn more.)

In addition to screwing with price discovery, it also inflates Coinbase Pro’s volumes and makes the exchange look like a better place to trade. Crypto exchanges are often ranked/judged by their volumes.

It makes people think the asset is more valuable than it really is.

"one of the most regulated exchanges in the world"

Is this sarcasm?

They meant one of the most regulated cryptocurrency exchanges. I don't think that's sarcastic. Try to cite a few that are significantly more regulated.

I don't think the statement is fair/correct because we don't know whether it is regulated well/properly at all. We have nothing to compare/benchmark basically, so why call it the "most regulated" one?

Alright that would be fair then

Implicit in the statement is that this is relative, by the extremely low standard of bitcoin exchanges.

>It's mind boggling that this would happen at one of the most regulated exchanges in the world.

I think you're misinterpreting what you are reading.

This is not coinbase doing anything, this is an employee taking action on their own, likely not even on company time or on company property.

That said, the company is still responsible for the employees' actions, especially because it relates directly to their job.

> This is not coinbase doing anything

Per the article: "Coinbase recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets"

From another article - https://www.coindesk.com/coinbase-settles-with-cftc-for-6-5m... - “Importantly, the CFTC is not alleging that any Coinbase customers were harmed or that any wrongdoing occurred. Rather, it’s describing the activity as reckless but not intentional. This activity is no longer occurring, the CFTC said Friday.”

The behaviour described otherwise is clearly intentional, so Coinbase’s PR seems to be trying to whitewash their history.

It makes me believe my hypothesis that Coinbase deliberately (through purposeful neglect or action) allows or causes the platform to become inaccessible to users when Bitcoin price starts to skyrocket - to block and prevent impulse "HODLers" from selling, allowing enough time for the impulse of many to quell, among other consequences; I'd be curious if Coinbase collects login attempt data during this time, failed logins, or if their whole website including login system is also down.

When you "fake it till you make it" in applications involving other people's money, i'm pretty sure that's just fraud.

I mean, market manipulation can't be illegal on crypto is it?

I thought the whole point of crypto was anarchy and decentralization? Maybe it's time for Reddit to hype up some coin so that the fines can be covered?

Preventing a single individual from manipulating trading activity is a basic control for a trading platform. It's a failure of the company regardless of whether the employee acted alone or not.