The United States Commodity Futures Trading Commission (CFTC) has requested information from Coinbase regarding a flash crash of ethereum’s price in June 2017, which temporarily sent its price to as low as 10 cent.
The regulator appears to be particularly interested in the role margin trading and leverage might have played towards the flash crash, Bloomberg says according to “two people familiar with the matter.”
Coinbase only recently opened margin trading, limiting it to individuals that have $5 million invested or more, but disabled the service after the flash crash.
The exchange has considerably grown recently in popularity, serving more than 10 million customers, but it struggled to scale operations for some months.
The situation now appears to be better, with new support personnel hired and new hardware seemingly added to their backend, but the exchange has been edgy at times, especially when sentiments turn. Coinbase told Bloomberg:
“As a regulated financial institution, Coinbase complies with regulations and fully cooperates with regulators. After the GDAX market event in June 2017, we proactively reached out to a number of regulators, including the CFTC. We also decided to credit all customers who were impacted by this event. We are unaware of a formal investigation.”
Ethereum moved in a downwards trajectory for much of June and July after a multi-million dollars market order led to a cascade that quickly sent price to near zero.
It recovered within seconds, but sentiment was dampened, with the buy order book obliterated and with many traders loosing considerable amounts.
They were all refunded by Coinbase, with the company saying in late June they will refund, out of its own pockets, all “affected customers who had margin calls or stop loss orders executed ” during the flash crash.
CFTC, however, apparently wants to learn more, presumably to see how such event can be prevented in the future or why it was able to occur.
The regulator has taken an enforcement role of sorts in this space, filing fraud charges over an alleged bitcoin ponzi scheme recently and fining Bitfinex back in 2016 for providing margins trading without being licensed by CFTC.
With their involvement suggesting a wider trend of regulatory scrutiny following a considerable increase in the value of digital currencies, which have risen to a market cap of $140 billion, currently handling some $3 billion in trading volumes during the past 24 hours.