Crypto: Coinbase no class action

News broke yesterday that the class action claim against Coinbase, over allegations that it sold crypto as unregistered securities, was dismissed.

Coinbase’s share price on the stock exchange immediately reacted with a +12%, which not only allowed it to register a new 2023 annual high above $66, but also made it recover a price level not seen since before the collapse due to the FTX bankruptcy.

Allegations against crypto exchange giant Coinbase

However, all that glitters is not gold.

In fact, Judge Paul Engelmayer did not dismiss the class action claim because the deed does not apply, but because in the event of a final judgment this would impact the entire industry, not just the plaintiff.

Indeed, in fact Engelmayer admitted that 79 of the tokens listed on Coinbase could be considered securities sold without proper registration with the SEC, and without customers being warned of the risks they were taking.

Thus, the news cleared the exchange of the risk of facing a class action, but not of the possible wrongdoing of mis-selling securities.

Despite this, the stock jumped significantly on the exchange, aided by a particularly positive day in the crypto markets.

Judge Engelmayer also said that the explicit terms of use that Coinbase users agree to when they begin using the platform contradicted the plaintiffs’ allegation that Coinbase was indeed the “actual seller” of those tokens.

Moreover, it does not appear that the exchange offered to buy those tokens from them, so the judge dismissed the plaintiffs’ claims.

Indeed, in light of the reasons given by the judge to his decision to dismiss the class action claim, it is possible to say that the allegations in that specific complaint were found to be unfounded, but not that the general allegations of wrongfully selling unregistered securities were also unfounded.

At any rate, the lawsuit had been filed as late as March 2022, so it took almost eleven months to decide that it could not be pursued in this form.

While on the one hand it is theoretically possible that someone else would file a new complaint against Coinbase on these charges, on the other, it is clear that there would be a risk of a new windfall after many months of legal efforts and expenses.

Shut down of the NFT marketplace

Another accusation against Coinbase that seems to prove unfounded concerns the intention to shut down the NFT marketplace.

In fact although it is little known and used, the US exchange also has its own NFT marketplace.

It recently officially warned that it will be blocked from launching new NFTs.

However, the announcement also explicitly states that the marketplace will remain operational, although there are suspicions that it may be on the brink of possible closure.

The main problem is certainly the collapse of NFT trading volumes during 2022.

In fact, the highest monthly peak ever was reached precisely in January 2022, but over the course of the year monthly sales volumes fell by as much as 94%. Despite this, the NFT market remains active, so much so that in January 2023 there was 57% growth compared to December 2022.

Moreover, compared to January 2021, current volumes appear to be 50 times higher, so much so as to suggest that the 2021-2022 NFT marketplace was a real speculative bubble that can be considered as an anomaly that is not good for making comparisons with pre- and post-bubble values.

It is worth noting, however, that Coinbase’s NFT marketplace was launched after January 2022, i.e., while the bubble was already bursting.

Thus, Coinbase’s decision may also solely be to take advantage of this downturn period to try to improve the service, although it does not seem possible to completely rule out the possibility that in the future the exchange may instead decide to actually close or divest its NFT marketplace.

Coinbase’s NFT marketplace

According to Dune‘s data, there were no NFT trades on Coinbase’s marketplace during several days in January 2023.

The graph clearly shows how trading volumes were mainly concentrated in just five months of 2022, with the total all-time volume being just over $7.3 million.

It is therefore safe to assume that the exchange is losing out economically in providing users with this kind of service, so much so that even in those 5 months alone when it worked well it was probably not worth the risk.

It is worth noting that the company was forced to lay off many employees last year because of the bear market, which explicitly suggests that they had too many expenses.

At this point, the suggestion that Coinbase may decide to even go so far as to shut down its NFT marketplace becomes entirely credible.

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