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Coinbase Pro Disables Margin Trading (coinbase.com)
152 points by mercurialshark 62 days ago | hide | past | favorite | 117 comments

To me this gives even more creedance to the rumor that they have massive liquidity problems behind the scenes. Thus the continuous outages at times when the market is pumping. I’m highly dubious of their post mortems and the service incidents coincidental timings.

That makes no sense. TFA says

> In response to new guidance from the Commodity Futures Trading Commission

Coinbase has always been trying to follow all the laws and show how "legal" crypto can be. If the CFTC says they don't like it then Coinbase is going to shut it down... maybe they'll try to fight it behind the scenes - but they want to stay online and making money.

If they were going to lie, there are a lot better ways to go about it than blaming a government regulatory agency which probably will be fairly open to saying "Yes, we did ask them to close their margin trades because XYZ"

The "new" guidance was issued over 6 months ago...

Whatever their reasons, it's clear that it wasn't the CFTC's guidance that made them suddenly pull the plug.

Maybe, maybe not.

I could kind of see them having conversations with a regulatory authority for a few months, trying to see if there's a way to keep having the product.

Then, when it's clearly "Nope, not going to happen", they shut it down. That could take ~6 months with extended negotiations.

But why would "liquidity problems" cause outages? It's not like their servers require liquidity to operate or something. It makes much more sense that their servers are going down because trade volumes are up, thereby causing server load to go up.

I believe OP is saying when they can't cover orders, they pull the plug on the market rather than be overexposed.

As far as server load goes up, by how much does it need to increase to cause a problem? Are the numbers feasable, eg 100x volumes?

> I believe OP is saying when they can't cover orders, they pull the plug on the market rather than be overexposed.

I still have trouble picturing how this conspiracy would work. I assume it involves coinbase pumping bitcoin prices with money that they don't have. They pump it all the way up, realize "oh shit we don't have enough real money to cover the fake money", and then pull the plug to stop the bleed? Can't they decide ahead of time how much money they can safely spend and stop accordingly? Why do they need to halt trading? If they stop pumping, and the price continues to rise, that doesn't cause them to lose any more money, because it's just other people trading with other people.

>As far as server load goes up, by how much does it need to increase to cause a problem? Are the numbers feasable, eg 100x volumes?

It's kind of hard to tell just by looking at the charts. Just because trade volume is low doesn't mean load on the order matching engine is low. If you spam the trading engine with tons of non-marketable orders, nothing will get executed (no volume), but the order matching engine will still have to wade through those orders.

> I still have trouble picturing how this conspiracy would work.

Not saying that Coinbase does this, but incoming wires/ACH/whatever continue to roll in during an outage, but they can stop the initiation of any outgoing xfers, and then be slow with them claiming a backlog.

A big Canadian exchange, quadrigacx that blew up ~2 years ago was doing all sorts of tricks like this. Their bankruptcy is still ongoing, but somehow ~9 dollar in 10 went missing. The other 1 of 10 was frozen by a bank and eventually returned as $5m bank drafts that no bank would accept.

Kinda like "Your money is in Bill's house, and Fred's house", except Bill and Fred didn't have houses.

>Not saying that Coinbase does this, but incoming wires/ACH/whatever continue to roll in during an outage, but they can stop the initiation of any outgoing xfers, and then be slow with them claiming a backlog.

That would only make sense if coinbase was down for several days at a time. If it was only down for a few hours then that's nearly not enough time for enough money to flow in (aren't wire transfers batched per day rather than processed in real time?). It also doesn't answer my earlier question of "why don't they just stop pumping before they run out of money?".

>A big Canadian exchange, quadrigacx that blew up ~2 years ago was doing all sorts of tricks like this.

Perhaps that's exactly what's happening at coinbase, but pointing to them being down when there's high trading volume isn't a convincing argument.

> If it was only down for a few hours then....

All depends how stuck they are.

When it comes to bitcoin exchanges, there really is no need for conspiracy theories - there have been multiple high profile stories of very large players engaged in fraud, embezzlement, and duplicitous price fixing, and they are completely unregulated.

Your confidence in coinbase, given they are unregulated in any meaningful way, is IMO misplaced.

>Your confidence in coinbase, given they are unregulated in any meaningful way, is IMO misplaced.

I think you're reading too much into my comment. I wasn't trying to claim that cryptocurrency exchanges didn't engage in shady behavior, I was only claiming that the specific accusation of "they halted trading because of liquidity issues from their pumping" didn't make any sense.

You are incorrect. Coinbase regularly gets audited practically every other week by some random regulating body in the country. I’d say ask someone who works there, but you probably won’t as calling any Crypto exchange as ‘Bitcoin’ exchange is something that died off around 2015.

> When it comes to bitcoin exchanges, there really is no need for conspiracy theories

You're saying you don't think that any existing exchanges are conspiring (or have conspired) to defraud?

> there have been multiple high profile stories of very large players engaged in fraud, embezzlement, and duplicitous price fixing, and they are completely unregulated.

Doesn't this make such theories more plausible, not less?

It's not plausible. They don't play a role in "covering orders" aside from providing settlement. That's the job of market makers, who will be less willing to participate after outages.

The outages aren't related to insufficient liquidity and only hurt Coinbase.

It just depends how much capacity they provision. You could overprovision by 10000% like you suggest, or 50%. You can scale based on demand but it’s normal to have a lag.

Certain components cannot be scaled by just adding more machines. For example, scaling a matching engine is slightly more involved than that.

Or a typical writable database. Resharding data may not be feasible at all during a high load event.

Exactly this yes and as for where I heard it Twitter and several crypto forums. It’s a rumour not a fact and I do concede that Hanlons razor probably applies.

Where did you read this rumor? I'm interested in the details (I know about the downtimes)

fractional reserve rumors are pervasive and nonstop for custodial exchanges

there isnt really a source necessary

nobody has any insight until they do

Exactly this yes. I heard this on Twitter and occasionally on several different crypto forums when there’s been an outage during a price surge. I’m not saying this is definitive but the pattern is nonetheless concerning. I get service incidents happen but the timing always seems weird. That could be sample bias though.

In my opinion, the next custodial exchange to explode isn't a matter of if, but when, when, [...] and when.

This doesn't make sense. Their exchanges are open to view live, you can literally see the books and the available liquidity.

I didn’t think this was possible with standard coinbase. Maybe with coinbase pro you can see the order book but that could in theory be manipulated. If there’s something that easily disproved it I would be interested to see if yo don’t mind sharing.

How could their order book be manipulated?

They're unregulated, so the answer is "in any way they like".

They can't remove real liquidity because then the individual posting an order will realize. They can't add fake liquidity because then the individual who attempts to lift the ghost order will realize.

So how can they do this without getting caught (and they haven't been caught - firms like Alameda are watching closely)?

This sounds like one of those things that's easy to just exclaim but is lacking a mapping to anything specific

Trying to tie it to real liquidity is a strawman. They don't need to manipulate the order book for USD/BTC conversions. They can manipulate options, trades between different crypto currencies, futures and the like.

Here's an article about spoofing and market manipulation of real money in regulated excanges: https://ankura.com/insights/spoofing-market-manipulation-and...

This quote from the above article, does not apply to crypto exchanges so far as I know:

"Rules govern how trading is done. Laws prohibit manipulative trading practices on both securities and futures exchanges."

"To date, no cryptocurrency exchange has registered with the SEC" from https://medium.com/semadaresearch/should-cryptocurrency-exch...

> They can't add fake liquidity because then the individual who attempts to lift the ghost order will realize.

...Unless there's magically someone filling it just before they do (i.e. frontrun by an internal bot) every time they try. I have observed exchanges doing this. I don't believe that Coinbase is one of them, though, as others have pointed out with their positioning they are better of not to.

FTX does a lot of digging into this I think CB are one of the legit ones

You didn’t really answer his question though.

it depends on if the how is functional or espistmelogical.

Posting rumors like this without any evidence is irresponsible.

Is anyone actually making any money on day-trading Bitcoins? I bought a couple Bitcoins back in 2012 and have just sat on them the last 8 years. In general, the market for this stuff is so astronomically weird that it really doesn't make sense to try to trade in it at all..

I made a trading bot that was moderately profitable, until the exchange it was using got hacked and lost all my coins :/

Edit: The source is available if anyone's interested. I intended to do more with it, but lost steam after I lost my coins. https://github.com/nfriedly/Coin-Allocator


No, cryptsy.

Did you join in the class action lawsuit?

No, I don't think I even realized there was one. It's okay, thought, I only lost about $100. (I kept the balance low mainly because I didn't trust my own code yet.)

To answer your question: Yes. The volatility is a trader's dream.

I've been holding a sizeable Bitcoin position[1] since 2011, but I'll acknowledge you can make a killing trading in bull markets or crushing bear markets.

[1]: https://news.ycombinator.com/item?id=2612486

To my anecdotal experience, more like a market makers dream. If you do speculative HFT then for the unexperienced you may get crushed by huge slippages when exchanges crumble under a load. Notice that exchanges in the Bitcoin world either do not, or simply don't care, to guarantee availability during spiked trading. I don't say alpha is impossible, but probably requires certain degree of comprehension.

What's the best way to take a bearish position on Bitcoin? I looked into it during the price surge a few years ago, but couldn't find anything that didn't involve setting up non-USA accounts. Any secure ways to do this for US citizens?

CME offers Bitcoin futures[1], available for trading via Globex. It's a futures contract, so you won't hold any BTC position (long or short), and it's actually cash-settled, so you don't have to worry about delivering or actual BTC.

However, margin will be steep, considering the volatility; my broker in particular actually has a $200k overnight margin requirement for a short position.

I'm sure you've heard the saying that the market will remain irrational for longer than you can remain solvent. Please keep that in mind when shorting bubbles.

[1] https://www.cmegroup.com/trading/equity-index/us-index/bitco...

Awesome, I'll look into. Are you able to quickly buy/sell contracts whenever? I can live with market-timing risks, but not with risks outside of my personal decision control (e.g. i want to sell a futures contract but the platform says I can't for w/e reason, or they can't find a buyer, etc)

Yes. These /BRR contracts trade on Globex like most other futures contracts, meaning around-the-clock (23/5) trading. Liquidity is fine for single contracts in the front month -- bid/ask spreads are one to three ticks, and you won't have any problems getting filled. If you're trading tens of contracts, you're going to move the order book somewhat, but I'm assuming your volume isn't at that level. Like any other tradable instrument, you run the risk of slippage in volatile situations, e.g. a stop loss hitting during a big liquidation event. Since you appear to be willing to hold a short position for a long time, this shouldn't be an issue for you.

Exchange (that is, Globex) availability hasn't ever really been an issue (and I can't remember the last outage they had; it'll be a big deal, considering there are literal trillions in notional value swapping hands every day). Your broker, which will be your gateway to actually trading the contracts, will be the bottleneck of availability.

I personally use Interactive Brokers, and their uptime is great. Even during times of extreme volatility this year across many markets, which caused the likes of Robinhood or even more established brokers like TD Ameritrade to experience downtime, IBKR has been fine. Obviously your mileage may vary and I suggest you do your due diligence on brokers.

Another way to do it is by borrowing bitcoin with other collateral, selling it, then buying it back at a cheaper price. You can get a sense of rates here: https://defirate.com/loans/

So you might supply USDC on Aave and borrow WBTC. You can then trade that WBTC for USD (if you're bearish on BTC relative to USD), wait for the WBTC price to drop, buy it back and repay your loan.

Though if you're wealthy enough to trade the futures, it's taxed more favorably and easier to manage.

May I ask for recommendations on where to trade Bitcoin? The fees on Coinbase (Pro), Kraken, etc seem prohibitive to me, especially for larger sums.*

*) I‘m used to commission free stock trading with no volume limits in Germany, for any private individual. Don‘t know how this handled in other countries though.

For low volume, manual purchases, Robinhood is comission-free. If you want to make a bot and need an API, there will be fees.

Is it really free or is there a bid-ask spread?

For example, if you buy 1 BTC and then immediately sell it, will you get the same number of dollars back?

No market anywhere can offer that

Yes, but don't waste your time with American exchanges, the regulations are too burdensome. Bitmex actually maintains a high score section, a lot of people are doing extremely crazy things trading in the crypto space https://www.bitmex.com/app/leaderboard

As a legal citizen and with regular bank, coinbase was super easy. It was barely an inconvenience unlike the old days when trading really dodgy coins

I had Bitcoins in 2013 back when it was $50 and then lost them daytrading on margin at BitFinex. Would have 500x my money in several years.

Listen the rule is simple:

1. After a crash, buy BTC and just forget about it until some alert that BTC has exploded 5x or more

2. If BTC had a big run up, buy ETH instead

3. If ETH had a big run up, next buy XRP

4. If XRP had a big run up, then escape into tethers and wait for crash

Repeat :)

If you did this sequence the last few times then ONE bull run nets you 5 x 5 x 5 returns!

To be fair, if you brought $50 Bitcoins in 2013, you would have 380x your money today by doing nothing.

I'm sure your trading strategy is sound, but it's still a lot of work over the years to get the 500x gain, vs the 380x gain from just doing nothing.

(This comment is in jest. I realize "500x" is a figure of speech and not meant as a literal claim of performance.)


hahah, was going to say the same thing.

Yes. Just look at the 3Daily chart of BTC/USD. It's absolutely bonkers

Weirdness is good. If the market is weird, it means people don't know how to exploit it, i.e. you actually have a chance of finding an edge that hasn't been exhausted by someone else.

There isn't a compendium of standard tactics that "work" in normal markets. If there were, they would no longer be profitable. Anything that works is secret & novel, and finding a novel approach to an old market is harder than finding a novel approach to a weird one.

Yeah, created a bot that just trades the 1D MACD on Ethereum on a point & figure chart crossing up. Ridic how profitable this is. Proof is backtest on tradingview.

Nope. But when the volume and volatility is high like it is right now, it can be profitable to be a liquidity provider instead. It's actually very easy to provide liquidity to Uniswap and other decentralized such as Curve.fi - both have bitcoin-paired pools.

I have a friend who had a bot that was front running users when the Kraken trading engine was much slower....his bot stopped working when Kraken updated the engine though.

You don’t mean front running. That’s a term of art in trading that means a specific thing. That is, trading against someone’s position you know in advance and you have a fiduciary duty on their behalf (e.g. your brokerage trading against you).

Sure, maybe just simple arbitrage. To tell you the truth I don't know the exact details. Of course he wasn't doing anything illegal (I wouldn't write about it), he didn't have any special access to the exchange

Lately it's become fun again. Huge swings day to day and even hour to hour

It turns out Coinbase was reacting to this CFTC guidance.[1] The CFTC has ruled that "delivery" of a digital currency after a futures contract is closed out means delivery to the user's wallet, not a credit in the broker's accounting system. The Bitcoins have to leave Coinbase's control completely. Coinbase doesn't want customers withdrawing big amounts all the time, apparently.

[1] https://www.coindesk.com/the-us-cftc-just-defined-what-actua...

I could see it being the case that this could be in part problematic because it could interfere with their anti-theift/fraud mechanisms. If you are mandated by law to pay out the full amount immediately with no strings attached. An attacker could (idk much about to futures markets so maybe I'm wrong) make a super short term trade that forces them to take possession of the coins as a way to bypass withdrawal security.

They actually got the CFTC to allow 28 days for settlement. Some of the other players, such as Gemini, wanted 2 days. If Coinbase can't live with 28 days for settlement, it's because they don't want the money leaving their control.

Ohhhh, that's a telling tidbit, thank you.

> In response to new guidance from the Commodity Futures Trading Commission, we are disabling our margin trading product.

As other articles mentioned, which unspecified guidance?

Anyway, don't really care about whether margin is available or not on spot assets, good luck with that. Stay solvent and liquid!


There is plenty of permissionless leverage onchain in defi platforms and insurance coverages

whew got worried for a second there haha

The reserves are more transparent than exchanges with insurance coverage.

I embrace that. There is nothing sarcastic about it to me.

I recognize that and as per usual I disagree with you but I respect and appreciate both your opinion and your willingness to share it with me. I always appreciate my opinions being challenged, and acknowledge that they are simply my opinions. Any perceived sarcasm is meant as banter and not disrespect :) a tough line on the internet I'll acknowledge, hence this reply.

I will also say that yes transparency in these matters is a strict improvement over the status quo so we can certainly agree on that.

This is actually great news!

Margin trading and investment Bitcoin storage don't belong to the same institution in my view, unless there's a clear separation of ownership in a case of bankrupcy.

>Margin trading and investment Bitcoin storage don't belong to the same institution in my view, unless there's a clear separation of ownership in a case of bankrupcy.

What's the concern here? That someone will buy bitcoin on margin, withdraw all of it, and then declare bankruptcy?

If you want other examples of how this goes wrong outside of Cryptocurrency, there are some amazing stories on WallStreetBets of traders exploiting bugs in Robinhood’s margin limits to over-leverage and ending up millions of dollars in the red.

It’s not a matter of withdrawals, it’s a matter of losing more money than you have and being unable to cover the loss.

Okay, but why cryptocurrencies specifically? If you find some infinite leverage exploit on coinbase, how are the effects different compared to one on robinhood? The gp commenter mentioned something involving "separation of ownership in a case of bankruptcy", but even then, I don't see how that's any different than finding a infinite leverage exploit on robinhood, finding a withdraw exploit, withdrawing to your bank account, then buying cryptocurrencies with it. At the end of the day as long you can find a infinite margin exploit + withdraw exploit on any margin platform, you can make wealth dissapear into the aether of cryptocurrencies.

Correct me if I'm wrong as I can't use their platform, but Robinhood doesn't act as a bank and mercantile payment processor do they? They only do trading. Coinbase does all the things I mentioned and more.

GP was probably expressing concern that it may be possible for Coinbase to be wiped out in bad leverages which would affect people that don't trade at all.

RH created 'cash management' that came with a debit card, but the exploit was exposed (and patched) before that was available to everyone, but even then you'd have to find an exploit where spending money via the debit card doesn't do the same sanity checks as withdrawing.

0: https://news.ycombinator.com/item?id=18672951

Is that any different than bank of america operating a retail bank and a brokerage platform (Merrill Edge[1])?

[1] https://www.merrilledge.com/investing/margin-trading

That’s not a matter for the CFTC in the spot market or care that an idiot has to pay debt collectors all because they wanted to earn a few pips intraday.

CFTC doesnt regulate spot assets. So it really depends on how Coinbase classifies what people are actually trading.

I always wondered how much of a problem 2M+ in the red is on Robinhood.

I mean can they actually expect you to pay back what they legally shouldn't have let you have? Are you 2m in debt or in trouble for hacking or what?

Kraken is destroying them in margin/derivatives and their margin product is quite bad. Not saying there is a relationship, but it is a good trade for Coinbase if Kraken has to shutter theirs as well.

Are they though? If not, what lets kraken continue?

I don’t see how this is much different to how the CFTC steps in and raises margin requirements on silver futures contracts when the price starts to run. I would tend to guess that coinbase really did have the CFTC bring the hammer down and force them to make this change just as the pricing of crypto started to rocket.

Coinbase has been leading the Bitcoin rally lately and dragging (the supposedly) tether inflated bitfinex exchange.

I wonder if coinbase users went too far in using margin that the CFTC intervened. Wait and see if the same happens to Kraken. They are both bitcoin exchanges.

Who was the counterparty? Margin trading implies that some party in addition to the customer is at risk. Some of the Bitcoin exchanges tried to escape this by closing out positions when the customer's equity was wiped out, but in a falling market, you often can't do that fast enough. Then the broker/exchange has to collect from the customer beyond what they had in their account.

That led to messes like this [1] when the bottom fell out of natural gas prices.

[1] https://advisorhub.com/broker-seeks-millions-from-wiped-out-...

Isn't this only a concern when dealing with futures/options? If you're just buying bitcoin with borrowed money, the counterparty is just the guy lending you the money (coinbase).

Blog: We've disabled margin trading because of CFTC. For more info go to our FAQ.

FAQ Question 1: Why have you disabled margin trading? We've disabled margin trading because of CFTC. For more info go to our blog.

Check the blog again.

Welp... We'll never see him again.

GOTO blog

Maybe forcing a large fraction of their best talent out the door wasn't such a hot idea.

Further reason why exchanges that are offshore and outside of US jurisdiction continue to dominate. Old rules for an old world, meanwhile the industry has been innovating 1000x faster than the traditional financial system. I get that the US and it’s regulators never want to let go of their power, but every day that passes they get weaker as the future bypasses them.

Stupid people think margin trading is easy money and will lose that in the blink of an eye.

And stupid companies? They’ll do the same thing but take all their employees and affiliated companies with them.

This was downvoted but it's actually true. Most volume is speculation driven and every speculator prefers the less regulated high leverage derivative venues. Regulations have hurt Coinbase's volume in the exact same way that Japanese regulations almost killed Bitflyer. The biggest exchanges are now mostly Chinese - Huobi and Ok.

Just so you know, margin trading is very accessible in the "old world" haha. It just applies to, you know, assets.

Apparently you can only create a product to do this in the US with the blessing of the CFTC. In foreign countries, you do not need their arbitrary blessing. That is my criticism.

Yep regulation is a wonderful thing. It ensures toxic garbage doesn't gain widespread acceptance. Tries to, anyways. That's why we have these agencies - remember the Great Depression? They didn't call it the because it just a pretty good depression.

That wasn't caused by trading or its regulation, it was caused by macroeconomic policy.

It's fair to say there were a lot of causes of the Great Depression, to be sure. However.

Much of the "Roaring 20s" that preceded the giant market crash happened because of zero oversight or regulation and saw tons of fraud, and, yep, tons of reckless margin trading. This created huge systemic risk that all came to bear on Black Tuesday, which led to unemployment, homelessness and bankruptcies. This led to the Securities Act of 1933 and 1934.

Further, the Glass-Steagall act, also of 1933 separated investment banks and depository institutions. I'll let you take one guess why this was necessary. I'll also let you take one guess what happened after it was repealed (in 1999).

Also kicked off in 1933 was the FDIC.

All three of these are incredibly relevant to crypto and to this specific conversation.

[1] https://www.history.com/topics/us-government/securities-and-...

In the teens, there was World War I and a pandemic. There is no reason why people should be out of work in 1933, because of a stock market crash that happened 4 years prior. Once the crash happens, you can pick yourself up and get back to work. The slow recovery in 1929-1940 was because of the Hoover and Roosevelt administrations (and Congress).

The link I provided does disagree so I'd love to read any supporting evidence you have!

You can just google it yourself, I'm not interested in listing evidence, because the proper way of looking at questions like this requires operating with a model of reality, not just listing a bunch of facts.

A big part of that was people using stocks as collateral to borrow money to buy more stocks.

And here we are now, a plague and a massive stock rally.

If I were to bet, I'd say people should prepare for history to rhyme.

Or maybe the CFTC doesn’t like competition, and is abusing its power in order to maintain a monopoly in leveraged and derivative product innovation (or lack there of honestly).

I don’t want rules from the 1930s regulating crypto. Luckily foreign countries exist that don’t have to abide by the US laws and regulators. It would be a very sad world if everyone was controlled by a single regulator in the US. There would be no innovation.

The year in which the regulation was brought in is totally irrelevant, the only thing that matters is whether the regulation is useful and meaningful. I guarantee you if Tether had to abide by the Securities Act it would not exist. I for one am thrilled to have the SEC looking out for us, keeping the scammers and frauds at bay - or at least trying.

Good policy is good policy no matter what year we came up with it.

History repeating/rhyming as farce/tragedy etc. etc.

It’s about controlling risk. Think of 2007/2008 bank collapse when they played with fire and were leveraged 30 to 1.

It's not an apt analogy, these are standalone institutions without systemic ties to other parts of the economy, and someone who blows up crypto margin trading is only hurting themselves (or the insurance fund which is sunk cost anyway).

Even if I grant the analogy, their original proposition is accurate. Regulations are the main reason why US exchanges are an incredibly small percentage of total crypto volume.

My company offers 100 to 1 leverage. But no US customers allowed, of course. We target professional traders.

Professional traders know not to use brokers offering insane leverage because of the risk the broker will be wiped out.

Do you have a way to protect one customer's funds when another customer is ruined?

High leverage means less counterparty risk because the max loss is the capital residing on the exchange which is much less than the position size.

As far as mechanisms there's auto deleveraging and insurance fund.

Professional traders all wish to be on exchanges with high leverage because it means more volume is uninformed flow and therefore there is more alpha on the table. The pie is bigger.

All major offshore exchanges offer 100 to 1 leveraged crypto futures - it is table stakes for the industry. We have a lot of mechanisms plus an insurance fund to protect the system.

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