Is the Coinbase Exchange Too Vulnerable to be Trusted?
The CEO of Coinbase (which is arguably the world’s most popular exchange for buying and selling bitcoin) came clean to the investment world last week with some candid, but hardly reassuring, statements about his cryptocurrency exchange.
In a Medium post, the CEO, Brian Armstrong, made the following statement:
“We wanted to remind customers that access to Coinbase services may become degraded or unavailable during times of significant volatility or volume…This could result in the inability to buy or sell for periods of time."
Hmmm. So what you’re saying is, when there is a flurry of buying and/or selling, and investors are either trying to pour in or run for the hills, I may not be able to trade in my cryptocurrency accounts? While the honesty from Mr. Armstrong is certainly appreciated, the reality of liquidity problems is a major issue.
Some assets can exist perfectly fine in illiquid markets, like fine art or real estate. But bitcoin and other cryptocurrencies are trading assets, which means that it is imperative that they can be bought and sold at ease, and at the investor’s discretion. Issues with being able to login to an account at Coinbase to make trades is a major one, and should be watched closely by the cryptocurrency investment community.
The reason for Mr. Armstrong’s statement was a result of bitcoin’s price soaring last week by $3,000 in a single day, reaching just under $20,000. During the surge, Coinbase customers could not log into their accounts and once they were in, they experienced downgraded service for a period of time. If this outage was a one-off, maybe it would be less worrisome. But this is not the first time that Coinbase has experienced issues during periods of high volume – in November, when bitcoin soared over $11,000 per coin, the exchange experienced a “partial system outage” where many users were locked out of their accounts.
To be sure, Mr. Armstrong is pursuing the issue vigorously, and Coinbase has increased the size of their support team by 640% and invested heavily in their infrastructure so that they can increase the number of transactions they process during peak times by over 40x.
There’s a lot of work left to be done, and Coinbase remains one of the mostly widely used and trusted exchanges by investors in the cryptocurrency community. But the biggest question over time will be how well they can overcome the obstacles that come with growth, and whether the platform can remain secure and liquid enough to be the leading exchange for bitcoin and other major cryptocurrencies.
Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
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