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U.S. cryptocurrency exchange Coinbase started setting up an internal crypto trading desk last year despite previous assurances to Congress that it was not running a proprietary trading business, the Wall Street Journal reported today.

Coinbase created an internal business unit for crypto trading and staking in July 2021, according to the WSJ. The report, which cites unnamed internal sources, says the firm hired senior Wall Street traders to helm the effort to invest the company’s own funds in crypto trading activities.

Proprietary trading by exchanges is frowned upon by regulators as it can constitute a conflict of interest. Internal trading desks can lead to exchanges trading against their customers and can lead to significant client losses.

Last December, Coinbase executives appeared before Congress to state that they were not running a proprietary trading business. Prior to this, the platform had established a business unit for trading crypto on behalf of clients called Coinbase Risk Solutions and in 2022 this unit completed a $100 million crypto transaction from which it profited, according to the WSJ. 

Coinbase ended its attempt to create an internal trading desk after the $100 million deal was completed. The WSJ report claims that some people within the company were no longer sold on the idea of doing proprietary trading. The Wall Street traders hired to helm the unit also left the company, the report added.

“Coinbase does not, and has never, had a proprietary trading business,” a spokeperson for the exchange told the WSJ. “Any insinuation that we misled Congress is a willful misrepresentation of the facts.”

Coinbase did not immediately respond to requests for comment from The Block.

These attempts at running an internal trading desk are coming at a time when Coinbase is trying to diversify its business to drive further growth. The company’s revenue dipped $1.1 billion in Q2 2022 amid the broader crypto price downturn that has characterized the year so far.

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