Coinbase criticizes bankrupt crypto companies for a deficiency in risk management

Coinbase, a cryptocurrency exchange, has argued that enterprises that recently filed for bankruptcy protection neglected to examine fundamental risk management principles.

In a July 20 blog post, Coinbase noted that firms such as Celsius, Three Arrows Capital (3AC), and Voyager Digital got carried away by the crypto bull market and implemented procedures that led to a high-risk concentration.

“We feel that these market participants were so caught up in the excitement of a crypto bull market that they neglected the fundamentals of risk management. “Unhedged bets, significant investments in the Terra ecosystem, and substantial leverage given and deployed by 3AC meant that the risk was too great and too concentrated,” the exchange said.

According to Coinbase, the bankruptcy filing caused by the recent cryptocurrency market crash would certainly leave a lasting imprint on the industry. The market collapse was hastened by regulatory pressure, excessive inflation, and the failure of the Terra (LUNA) ecosystem.

expected impact of the crypto meltdown

Coinbase recognised that the effect on the company was expected due to the absence of risk management mechanisms. The exchange warned, for instance, that certain corporations had excessive short-term obligations.

Moreover, Coinbase said that weak risk management procedures might impede the influx of money into the cryptocurrency market, preventing its development.

“A thriving and well-functioning financial market is crucial for the growth and sustainability of any economy. Coinbase believes well-designed risk management strategies will help bring in new money and drive the next growth.

Coinbase’s response to the market crash

Coinbase is among the firms whose operations were restructured due to the market crash. Since then, the exchange has placed a hiring freeze and laid off some of its personnel.

The exchange informed users in a blog post that it had taken the required precautions to prevent bankruptcy. According to Coinbase, some risk mitigation strategies include thorough due diligence and preparation for external unexpected.

Overall, the cryptocurrency sector has made modest advances lately, reclaiming a market capitalization of $1 trillion, driven by Bitcoin, which has stabilised above $20,000 per coin.

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