There's no denying that Coinbase is a big name in the crypto game. It has always been one of the biggest crypto exchanges, sitting alongside other big players like Binance and Kraken. It's clear that Coinbase is a legitimate exchange that many people have entrusted with their funds. But this huge company is not perfect by any means, and here's why.
Why Might Coinbase Be Untrustworthy?
While Coinbase is known to be a reputable platform, it has seen its fair share of controversies in the past, which have led to rumors that Coinbase is a scam.
Fraudulent and Misleading Claims
In August 2022, Coinbase Global Inc. was sued for making fraudulent and misleading claims about how the company operates. Two separate plaintiffs sued Coinbase for allegedly causing the loss of funds via deceptive language. The two separate firms suing Coinbase state that their clients were affected by the company's failure to register certain assets as securities. Coinbase was also alleged to have not disclosed certain bankruptcy terms to its customers, which also affected the plaintiffs.
Because of this, Coinbase is also currently under investigation by the Securities and Exchange Commission (SEC) due to the possible sale of unregistered securities. The SEC subpoenaed Coinbase in August 2022, after having already filed a civil complaint against the company because of its failure to list certain cryptocurrencies as securities. It is thought that the platform allowed its users to trade these unregistered assets without their knowledge.
Halting Price Alerts
What's more, Coinbase was allegedly found to be withholding certain notifications to its users between February and June 2022, during a huge cryptocurrency market crash. During this time, almost every cryptocurrency in the market took a hit, with big coins like Bitcoin and Ethereum losing huge chunks of their value. This was bad news for exchanges, as investors tend to cash out quickly when they notice the market is taking a turn for the worse.
A Mother Jones article published in August 2022 states that Joe Hovde, a data scientist, noticed that he stopped receiving emails about the prices of certain crypto assets from Coinbase. Prior to this, Hovde was receiving emails from Coinbase about crypto prices, but this suddenly stopped at the end of February 2022. It was only in June 2022 that Hovde began receiving price notifications from Coinbase again.
Coinbase told Mother Jones that its price notifications were only sent to certain users as a test pool, and users only began receiving price notifications on a wide scale in June. However, this pause in price alerts is still suspicious to many. Coinbase's decision to halt price notifications for its users could be a violation of consumer protection laws, though it is not known whether the company will be investigated for this, and led some to believe Coinbase was scamming users.
But things don't stop there.
Misleading Public Listing
In the summer of 2022, Coinbase was again sued, this time by a shareholder. The shareholder in question is seeking damages from nine different Coinbase executives for securities law violations and mismanagement.
Coinbase became the first crypto exchange to go public in the stock market in April 2021. However, in this derivative lawsuit, it has been claimed that Coinbase made deceptive statements in its listing registration form to the SEC. Coinbase put together a "flywheel" growth plan, which was disrupted by an increase in the platform's volume, which, in turn, led to service disruptions.
Because Coinbase did not grow in the way it allegedly had stated, investors were negatively affected. This fueled speculation that Coinbase was untrustworthy or even fraudulent.
The suit also states that Coinbase violated securities laws in its public listing. This ties back to the previous lawsuits mentioned that claim Coinbase did not correctly register certain assets as securities before allowing users to trade them and that Coinbase fraud is rife.
Coinbase's share prices have taken a big hit throughout 2022, falling from around $200 per share in March to just $67 per share in September. Various factors have played into this plummet, including the crypto crash that began in May of the same year.
Is Coinbase a Scam?
There's no denying that Coinbase is a secure platform. But, while Coinbase is not a scam, its various legal plunders have given the company something of a dubious reputation. Time will tell whether Coinbase can regain the trust of its investors and recover its value in the stock market.