BTC price drops and Coinbase goes offline… temporarily

Getting your Trinity Audio player ready...

Digital asset traders noted another instance of a major exchange service outage during a price drop. The Coinbase (NASDAQ: COIN) trading suspension might have been short and temporary, but for many it’s enough to cause losses. Are regulators watching this space?

https://twitter.com/CryptoWhale/status/1484624108855906313

An online exchange suddenly going offline during a period of heavy trading barely even makes the headlines these days. That’s not because it isn’t a serious issue, though—it’s because it happens so often that traders have come to accept it as part of the experience.

It shouldn’t be, though. People lose actual money in these outages if prices are falling like a rock, and they can’t access their funds. Major (non-trading) sites like Facebook and Twitter rarely suffer downtime, and if they do it does become a headline. Trading platforms, however, often seem to run out of bandwidth the moment there’s a selloff.

Doesn't Coinbase do that often ? Either when bitcoin sells out or when xrp gets a pump. Is known.

— j. (@N0BODYJ) January 21, 2022

Coinbase didn’t say much about the outage, other than:

What a week 😶

Drop an emoji to show us how you're feeling …

— Coinbase 🛡️ (@coinbase) January 21, 2022

We’re not suggesting Coinbase did anything wrong on purpose here. But it’s a phenomenon that seems to occur often at digital asset exchanges.

Binance went offline at the same time as a large BTC drop in March 2020. A similar occurrence happened at Bitfinex at the end of September 2021. During those times traders were unable to login to their accounts or perform actions on their orders—such as closing leveraged positions or open spot trades, deposit or withdraw funds.

Popular mobile trading app Robinhood (NASDAQ: HOOD), which trades regular equities as well as digital assets, has become notorious for sudden downtimes. It didn’t disappoint during the latest crash either, with some “scheduled maintenance”:

Same with RH pic.twitter.com/KgiVAqK6jA

— The CREAM Real Estate Investors (@CashflowREmoney) January 21, 2022

WIRED noted in March 2020 that Robinhood had a tendency to go offline during heavy trading. High volumes that day had “pushed its infrastructure to a breaking point,” but the news site also noted that Robinhood had raised almost US$1 billion, and was valued at $7.6 billion (for the record, Coinbase Global is publicly traded and at the time of writing had a market cap of over US$55 billion). Surely with that amount of money floating around, platforms could build a rock-solid backend and IT infrastructure?

Robinhood’s most notorious outage was in January 2021, during the rush to buy shares in failing retailer GameStop. Traders who’d opened short positions on the stock (which seemed like a rational decision at the time based on company fundamentals) suddenly found themselves unable to close those positions.

The app, popular with millennials, has been accused in the past of capitalizing on its appeal to inexperienced traders. Indeed, its entire existence is based on getting more traders into the markets. The U.S. Securities and Exchange Commission (SEC) has also charged the company over “misleading statements and omissions” and “prioritizing its revenue over the best interest of its customers” concerning use of customer trading data.

Continued complaints from customers don’t seem to be erasing this phenomenon. After all, what can they do—move to another platform that does the same? The lesson to be learned from this is that large crypto exchanges’ attitude towards retail traders is one of indifference. Just as regular stock speculators in their living rooms stand little chance against large HFT/algorithm trading houses (who can access and act on data a split second before everyone else), individual digital asset traders also find they’re sacrificed so the big players can make profits. Regulators, if they actually do have the best interests of the general public at heart, need to look into some of these outages and downtimes more. Everyone knows speculative trading comes at a high risk, but they don’t want to play a rigged game.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, 
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.