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The reason behind the exchange’s decision is not clear. According to those familiar with the matter, closing the service is not linked to the scrutiny from SEC which has alleged that Coinbase was offering and trading unregistered securities, thereby violating federal securities laws.
Crypto exchange Coinbase Inc (NASDAQ: COIN) has announced its decision to stop issuing loans through its Coinbase Borrow service where Bitcoin (BTC) has been serving as collateral. Starting from May 10, customers will no longer be able to access the feature. However, the existing outstanding loans will not be affected.
Coinbase spokesperson commented:
“We regularly evaluate our products to ensure we’re prioritizing the offerings that our customers care about most. Effective May 10, we will stop issuing new loans through Coinbase Borrow. There is no impact on customers’ outstanding loans, and no action is required from them at this time. You will continue to have access to your loan history and the full Borrow dashboard.”
The program called Coinbase Borrow was launched back in November 2021. It allowed users of the Coinbase platform to borrow up to $1 million with 30% of their Bitcoin holdings serving as the only collateral required. The feature came with an Annual Percentage Rate (APR) of 8%, and the loan was structured in such a way that users only needed to pay the interest due per month at a minimum rate of $10. Besides, the idea was to prevent users from liquidating their Bitcoin holdings whenever there is an emergency need. Rather than liquidate, users could utilize the loan feature and its very low-interest rate which could be accessed through a payment app from PayPal Holdings Inc (NASDAQ: PYPL), or via bank transfer through ACH.
Why Is Coinbase Ceasing Borrow Program?
The reason behind the exchange’s decision is not clear. According to those familiar with the matter, closing the service is not linked to the scrutiny from the US Securities and Exchange Commission (SEC) which has alleged that Coinbase was offering and trading unregistered securities, thereby violating federal securities laws.
Some link ceasing the program to the crypto winter that started shortly after the launch of Coinbase Borrow. As crypto markets cooled down, fewer and fewer users began to take advantage of the product, leading to the decision to end support for it. The total number of those who actually used the advantages offered by the program is not clear.
Now, Coinbase is expecting enforcement action from the SEC. In March, the US regulatory agency issued a Wells notice to Coinbase warning of potential securities charges. In the notice, the SEC said it identified potential violations of US securities law and its intent to enforce action on the exchange. Coinbase’s response was firm, with its chief legal officer Paul Grewal stating that any kind of enforcement action against the exchange would lead to major “problematic risks” for the SEC and that the regulator would “fail on the merits”.
Currently, the SEC is eyeing the exchange’s spot market, staking service, Coinbase Prime, and Coinbase Wallet.