Crypto exchange Coinbase has unexpectedly ceased its Borrow service, which enabled users to obtain fiat loans using their crypto holdings as collateral. The company announced that on May 10, it would no longer offer new loans on Coinbase Borrow. The Coinbase Borrow service allowed users to borrow up to $1 million in fiat currencies against 30% of their Bitcoin holdings with interest.
Uncertain market conditions influence decision
The precise reason behind Coinbase’s decision remains unclear. However, it may be related to ongoing market fluctuations in light of the US continuously raising interest rates to combat inflation.
As the US faces repeated interest rate hikes and consecutive bank failures, industry insiders have observed a growing trend of ‘de-dollarization’ in the global economic landscape. This process refers to countries reducing their reliance on the US dollar as a reserve currency or medium of exchange. The consecutive interest rate hikes have prompted numerous international central banks to increase their interest rates to protect their fiat currency from depreciation.
Despite the May 10 deadline for new loan applications, Coinbase has clarified that customers with outstanding loans will not be impacted and can repay the company within the agreed-upon timeframe.
Coinbase faces legal and regulatory challenges
The decision to suspend fiat loans comes as Coinbase grapples with increased scrutiny from the US Securities and Exchange Commission (SEC). In March, the SEC threatened to sue Coinbase Global over certain aspects of the crypto exchange’s spot market and its Earn, Prime, and Wallet products.
Coinbase has since asked a US court to compel the SEC to clarify acceptable crypto rules in the US after the regulator began investigating the crypto exchange’s business activities.
Additionally, a lawsuit filed in a California District Court by plaintiff Michael Massel alleges that Coinbase has violated Illinois’ Biometric Information Privacy Act (BIPA). The act ensures that companies cannot collect and store customers’ biometric information, such as thumbprints, without consent.
