Coinbase, the popular cryptocurrency exchange, is facing an inquiry by regulators in the U.S. over a flash crash back in June that erased nearly all the value of the Ethereum (Ether) currency, the second most popular cryptocurrency.
According to a report in Bloomberg, the Commodity Futures Trading Commission (CFTC) wants information from Coinbase about its GDAX platform and the June 21 crash. With the crash, the value of Ether tokens dropped to $0.10 from $317.81 in what Bloomberg said was milliseconds before it quickly recovered. The crash was caused by one trade of $12.5 million triggered by automatic sell orders from traders who wanted out if the Ether currency hit a certain level. The action sparked selling by other investors, and prices jumped back up to $300 within seconds, according to Bloomberg.
The report said the agency is looking at what role Coinbase’s policy — in which traders can use borrowed money to make bigger bets — played in the crash. The CFTC wants Coinbase to answer a list of question it sent via a letter, some of which focus on margin trading.
Coinbase began offering margin accounts as a way to lure institutional investors to the exchange in March. The service was disabled after the June crash, noted Bloomberg.
“As a regulated financial institution, Coinbase complies with regulations and fully cooperates with regulators,” Coinbase said in an emailed statement. “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.”
The move on the part of CFTC to look into the June crash comes at a time when U.S. regulators are picking up their focus in examining cryptocurrency, the value of which has skyrocketed throughout the year. While Coinbase is not registered with the CFTC, it is the main watchdog agency for currency futures, Bloomberg noted.