Coinbase’s BCH listing put their greed ahead of customer trust
With no advanced notice, on Tuesday evening Coinbase enabled full trading support for Bitcoin Cash (BCH), breaking the trust of their users.
The last update on BCH from Coinbase was on August 3rd, in an email to their customers and post on their blog. In this update Coinbase stated they plan to add support for withdrawals of BCH by January 1st, and they will make a determination about adding trading support at a later date:
We are planning to have support for bitcoin cash by January 1, 2018, assuming no additional risks emerge during that time.
Once supported, customers will be able to withdraw bitcoin cash. We’ll make a determination at a later date about adding trading support. In the meantime, customer bitcoin cash will remain safely stored on Coinbase.
No further communications on BCH were made by Coinbase until they enabled it at 4pm on Tuesday 19th. In an email that followed at 4:20pm they announced this to their customers:
We’re happy to announce that Bitcoin Cash (BCH) is now listed and available for trading on GDAX. We made this decision by considering such factors as customer interest, developer support, network security, market capitalization, trading volume, and our Digital Asset Framework. You can read more about Bitcoin Cash on our FAQ page.
The following order books have been created and will remain in post-only mode until there is sufficient liquidity for trading:
BCH–BTC
BCH–USD
BCH–EUR
Bitcoin Cash was created by a fork of the Bitcoin network on August 1st, 2017. All customers who held a bitcoin (BTC) balance on GDAX at the time of the fork have been credited an equal balance of Bitcoin Cash (BCH) in their GDAX account. Your BCH balance will reflect your BTC balance at the time of the Bitcoin Cash fork, which occurred on August 1, 2017 at 13:20 UTC (block #478559). You can read more about what a bitcoin fork is here and our previous update on Bitcoin Cash here.
The listing was a cluster fuck. BCH prices immediately surged to over $8,500 at a time when it was selling for approximately $3,500 on the broader market. Many transactions did not complete, and after a few minutes the market was paused.
It’s not clear during this time how many bad market orders were made on GDAX, or more concerning, how many retail customers purchased BCH on Coinbase at well above market prices.
BCH was undergoing a major price surge on the wider market at the time. This coincided with the anticipated difficulty change on the Bitcoin chain, which made the mining of BCH more profitable for miners. That Coinbase would list BCH at this time, on a Tuesday evening, without any advanced notice suggests it rushed BCH trading into service ahead of plans so they could cash in on this major surge.
Coinbase had built up a special place as one of the most recognized and until now trusted brands for retail cryptocurrency users. For many it is where they buy their first cryptocurrency. And most people recommended Coinbase to inexperienced friends and relatives because of this trust.
Coinbase must have known that they hold this special position, and when they listed BCH many of their users will see “Bitcoin Cash” next to “Bitcoin” and without knowing what they are doing will purchase Bitcoin Cash. Coinbase intentionally unleashed these users straight into a surging BCH market. This is not a customer first attitude and is atrocious wild-west behavior.
On top of this there are suggestions that Coinbase employees may have conducted insider trading on the knowledge that they were going to list BCH. This is certainly feasible, with the knowledge that all their users would now be buying BCH, and no forewarning to the public to act as a counterweight to their insider knowledge, they would have all been in a great position to purchase BCH ahead of the listing.
The timing and the lack of advanced notice is very serious misbehavior for a company that just back on August 3rd was expressing concern for taking the “best approach … to maintain customer trust.” If Coinbase had been putting their customers first, they would have given an update to customers and the public on their blog announcing the date and time that BCH would be listed weeks prior. And they would’ve included an educational blog for their retail users about the differences between Bitcoin and Bitcoin Cash to avoid any confusion.
