The U.S. Commodity Futures Trading Commission (CFTC) is reportedly making enquiries into the ether flash crash that occurred earlier this year on Coinbase's GDAX trading platform.
According to sources speaking to Bloomberg, the CFTC is specifically looking into what role margin trading may have had in the sudden crash, as Coinbase had allowed traders to borrow money from the platform to make larger trades.
Coinbase began offering margin trading services in March and suspended them following the flash crash. As stipulated on its website, in order to be legally eligible for margin trading, participants had to conform to one of several conditions – for example, holding over $10 million in assets elsewhere.
Sources told Bloomberg that the CFTC sent San Francisco-based Coinbase a letter questioning its margin trading practices, among other enquiries.
Coinbase told Bloomberg:
While Coinbase is not registered with the CTFC, it holds licenses with a number of regulators across different U.S. states.
General manager of Coinbase's GDAX market Adam White told Bloomberg at the time of the flash crash that it was prompted by a trader selling $12.5 million-worth of ether, causing others to panic sell in what White called "a rapid, cascading event."
The crash was over almost as soon as it had started, with ether's price back to around $300 within 10 seconds. However, the fall triggered a margin call, liquidating positions held by leveraged traders. GDAX later moved to issue refunds to those who had lost funds in the event.
Last year, the CTFC sanctioned another cryptocurrency exchange, Bitfinex, for not respecting margin trading laws, among other infringements.
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.
Stock market image via Shutterstock