Reason 126,551 Why We Need Cryptocurrency, Coinbase Clears Its Name

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The Cryptoverse

5 min readSep 21, 2018

On Today’s Episode of The Cryptoverse…

Reason 126,551 why we need cryptocurrencies, Visa and Mastercard have just lost a lawsuit landing them with a settlement bill of over $6b.

https://news.bitcoin.com/credit-card-cartels-landed-with-6-2-billion-bill/

Watch the podcast right here in the article!

Episode Transcript & Notes

Mastercard are only due to pay $108m but Visa are paying over $4b.

Oddly part of the settlement will be paid in shares in JP Morgan, Citigroup and Bank of America.

That makes very little sense to me personally, but I’m assuming that’s how they are making up the difference in the value of the settlement.

If you add $4b and $108m it falls short.

Bitcoin.com points out that the total settlement of $6.2b is greater than the market cap of EOS, but is small compared to Visa’s annual revenue of $18b.

Much like what Microsoft got pinched for in their hayday, this was an antitrust case accusing Visa and Mastercard of abusing their monopoly position and inflating the fees they charge merchants for processing card payments.

According to Bitcoin.com this abuse had been running as far back as 2005.

That’s the biggest problem I see with these kind of offences by financial institutions. I see the same pattern over and over again.

Once the offence is committed there is this huge time delay before it is caught, tried and punished.

By that time the specific people involved have moved on to work for other companies and it’s their former employer, the company itself, that gets done.

The individual perpetrators never seem to have to face the consequences of their actions, just like in the 2008 financial crisis.

In a world of crypto currencies and crypto assets this would not be a problem.

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Now let’s have a look at this controversy around Coinbase and the New York Attorney General report.

I’m going to grossly simplify this story but initially Zero Hedge published an “expose” which carried the headline “Coinbase trading against customers, 20 percent volume internal flow.”

https://www.zerohedge.com/news/2018-09-18/exposed-coinbase-trading-against-customers-20-percent-volume-internal-flow

The accusation stemmed from this report that said Coinbase had disclosed that almost 20% of executed volume on it’s platform was attributable to it’s own trading.

Zero Hedge says that in the Forex markets the brokers generally see it as a safe to bet against whatever retail investors are doing.

This say that Coinbase is starting to exhibit that kind of behavior.

But then today Coinbase comes out with this on their own blog:

https://blog.coinbase.com/correcting-the-record-coinbase-does-not-engage-in-proprietary-trading-97e66145af6e

Mike Mepres, the Chief Policy Officer at Coinbase states here:

“Unfortunately, some media coverage inaccurately characterized the reports findings…”

which could be a reference to Zero Hedge.

Mike goes on to state here:

“Coinbase does not trade for the benefit of the company on a proprietary basis. In order to provide an easy-to-use customer experience, Coinbase Consumer quotes a price and then quickly fills the order from our exchange platform (Coinbase Markets). This takes advantage of the liquidity provided by the entire Coinbase ecosystem.”

I’m glad he said that because this is exactly how I understood the Coinbase ecosystem to work.

When the average retail customer sets up a Coinbase account and then buys Bitcoin with a credit card or with money they deposited via bank transfer, where do we think that Bitcoin comes from?

Where does the price quote come from?

Well it comes directly from Coinbase Pro, their trading platform.

So from the point of view of a trader on Coinbase Pro, when an order is executed, that could be another trader on Coinbase Pro, or (in 20% of cases) that order is coming from a Coinbase retail customer who is using the regular Coinbase user interface.

So it might look like Coinbase is trading against it’s own customers on the Coinbase Pro trading platform, but in reality they are saying that it’s the Coinbase Consumer system that comes along and buys or sells Bitcoin on behalf of a retail customer order.

This is incredibly frustrating for me, so I can imagine how this guy Mike feels about it.

This the type of thing that worries me about the regulators.

It’s a sign that they may still be attempting to write regulations for something they still have a gross misunderstanding of.

I know many people are not fond of Coinbase, but I’m on their side with this one. Especially since Coinbase as a company have done more for the cryptocurrency space than almost any other organisation.

So credit where credit is due.

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