Coinbase has become one of the most popular cryptocurrency exchanges in the world, holding over $100 billion in assets and processing over $2 billion in daily trading volume. This rapid growth can be attributed to the company’s strategic partnership with U.S. regulators and its commitment to complying with securities laws. However, recent reports suggest that Coinbase may be looking to expand even further by disregarding the Securities and Exchange Commission (SEC).
At the heart of the issue is Coinbase’s decision to offer a new lending product called “Lend”. The product allows customers to earn interest on certain cryptocurrencies by lending them to others, with Coinbase acting as a middleman. However, the SEC has reportedly taken issue with the product, claiming that it could be considered a security and therefore subject to regulation.
Coinbase, for its part, has pushed back against the SEC’s claims, arguing that Lend is not a security because it is not an investment contract or a note. The company has also pointed out that other companies, such as BlockFi, already offer similar products without facing SEC scrutiny.
Despite Coinbase’s arguments, the SEC appears to be taking a hardline stance on the matter. In a recent statement, the agency warned that “market participants who make or offer loans using virtual assets may be participating in the unregistered offer and sale of securities.” The statement went on to say that companies offering such products may be subject to enforcement action.
So, what does this mean for Coinbase? On the one hand, the company’s decision to push back against the SEC may be seen as a bold move that could lead to further growth and innovation. By offering cutting-edge products and services that are not currently available on the market, Coinbase could cement its position as a leader in the world of cryptocurrency.
However, there are also risks involved. If the SEC takes enforcement action against Coinbase, it could damage the company’s reputation and lead to a loss of customers. It could also impact the wider cryptocurrency industry, with other companies becoming more hesitant to offer innovative products for fear of facing similar regulatory hurdles.
In the end, it’s unclear whether Coinbase will be able to expand further by disregarding the SEC. While the company has a history of working closely with U.S. regulators, it may also be eager to push the boundaries of what is possible in the world of cryptocurrency. Whether this bold approach will pay off remains to be seen.
Coinbase, the largest US-based crypto exchange, has launched a new derivatives exchange in Bermuda, further emphasizing its concerns over increasingly difficult US crypto regulations. The exchange, licensed to operate in Bermuda, comes after a public feud between Coinbase and the US Securities and Exchange Commission (SEC), which has blocked several new services that Coinbase wanted to launch.
Although Coinbase states that it remains committed to the US market, it is also becoming more vocal about building internationally. The exchange has been operating across Europe and parts of Asia, Africa and Latin America for years, but its recent move into derivatives in Bermuda is a clear indication of its international aspirations. Only bitcoin and ether derivatives contracts will be offered at launch with leverage options capped at 5%.
The launch of the Bermuda-based Coinbase International Exchange is also a response to Coinbase’s belief that US crypto regulations are nonviable and unhelpful to its business. Despite being asked to officially register as a securities exchange with the SEC, Coinbase has instead challenged the agency over which crypto tokens count as securities.
Other exchanges have withdrawn from the US market in recent times, most notably Bittrex, which recently shuttered its US operations shortly before being sued by the SEC. Eric Voorhees’ Shapeshift also moved to further decentralize when it closed its corporate entity to become a DAO.
Despite Coinbase’s concerns about US regulations, it has committed to staying in the US market for now. The exchange currently charges above-average trading fees to US crypto users, which make up roughly 40% of its customer base, with another 25% in the EU and UK.
While Coinbase has no immediate plans to exit the US, its recent launch of a Bermuda-based derivatives exchange is a clear signal that it is expanding its business outside the US. Indeed, Coinbase has been speaking with Abu Dhabi and the UK about building international business, and may yet find more amenable regulatory environments outside the US.
The SEC needs to take note of Coinbase’s concerns, as other jurisdictions, such as Hong Kong, revamp their regulatory frameworks for crypto exchanges, potentially drawing investors frustrated by the US’s hardline approach to the space. Under Gary Gensler’s regime as chairman of the SEC, crypto companies, including Coinbase, have experienced a more adversarial relationship with regulators. The agency recently sent Coinbase a “Wells Notice,” tipping it off that the agency is building a case against the exchange. Coinbase says it will fight any SEC lawsuit but may also be waiting out Gensler’s tenure, which could change the SEC’s approach to crypto regulation.