They can also take advantage of high volume in more sinister ways. Throughout the years, many have noticed that during times when the price of Bitcoin is falling rapidly, Coinbase goes offline. Though the company says it’s because of an influx of new customers, unmanageable trade volume, insufficient server capacity and the like, many suspect Coinbase of front-running.
During these times, an exchange could theoretically fill their own buy and sell orders before clients’ and make a great deal of money. In fact, US watchdog organization the Commodities and Futures Trading Commission is currently investigating Coinbase’s GDAX exchange for potential margin trading violations following Ethereum’s flash crash this summer.
Any exchange that has so much influence and goes mostly unchecked is troubling. The US has mostly let cryptocurrency flourish in the country, but should a rogue politician get scared and encourage restrictive measures like those imposed in China and South Korea, Coinbase might have something more to worry about. Should it ever be ordered offline like some others, it will surely cause a sizeable crash in the price of Bitcoin.
