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Coinbase Shocks Crypto Community: Halts Bitcoin-Backed Loans via Borrow Service

Coinbase, a renowned cryptocurrency exchange in the United States, has recently declared that it will no longer introduce fresh loans through its Borrow service. Earlier, this service permitted users to borrow funds using Bitcoin as collateral. 

This decision was made in response to the increased scrutiny by regulators and the potential risks associated with crypto lending. Despite being a popular option among users, the company has decided to discontinue the Borrow service and concentrate on other products. However, existing loans will continue to be serviced, and customers can still use their Bitcoin as collateral for other Coinbase offerings.

The Coinbase Mail

Coinbase Borrow sent out an email to its customers on May 3, informing them that they will not be able to apply for new loans with the exchange starting from May 10. The email, which was shared on Twitter by some recipients, did not provide any reason for this decision. 

However, Coinbase has clarified that the existing loans will not be affected, and users do not need to take any additional actions. Coinbase Borrow is a service that allows customers to borrow up to 40% of their Bitcoin holdings from the exchange, with a maximum limit of $1 million. The service does not require a credit check, and users are charged an annual percentage rate of around 9%.

Notice Came Amidst SEC Scrutiny

Coinbase users got this announcement during a time of regulatory conflict between the exchange and the Securities and Exchange Commission (SEC). Earlier, the SEC issued a Wells notice to Coinbase in March, alleging “potential infringements of securities laws.” 

Moreover, recently the Citi investment analysts have downgraded Coinbase shares from “buy” to “neutral,” while Mizuho analysts have maintained their “underperform” rating, citing weaker fundamentals and lower average daily trading volumes.

Coinbase also announced the launch of its Coinbase International Exchange (CIE) derivatives trading platform on May 2. This move came amid speculations of a regulatory crackdown on cryptocurrency companies in the United States.