The US Commodity Futures Trading Commission (CFTC) is reportedly investigating the June 21st Ethereum Flash Crash. According to Bloomberg, the regulator has sent a request for information to Coinbase about the performance of its institutional exchange platform GDAX.
The CFTC is reportedly specifically interested in the use of leveraged (margin) trading on the platform and that will be the focus of its probe. While very popular with institutional traders, leveraged trading can lead to higher market volatility and greater capital risks, especially in a limited volume environment like that of cryptocurrencies. Last week Korea banned Bitcoin exchanges from offering credit for these reasons.
The CFTC has yet to make a public comment on the matter but Coinbase issued a response to Bloomberg, essentially confirming the report.
“As a regulated financial institution, Coinbase complies with regulations and fully cooperates with regulators,” the company said in an emailed statement. “After the GDAX market event in June 2017, we proactively reached out to a number of regulators, including the CFTC. We also decided to credit all customers who were impacted by this event. We are unaware of a formal investigation.”
On 21 June 2017, a multimillion dollar market sell was placed on the GDAX ETH-USD order book. This resulted in orders being filled from $317.81 to $224.48, translating into a book slippage of 29.4%. This slippage started a cascade of approximately 800 stop loss orders and margin funding liquidations, causing ETH to temporarily trade as low as $0.10. After initially saying otherwise, Coinbase soon announced that it will reimburse those affected.