Coinbase grew quickly by working with US regulators. Will it expand even further by defying the SEC?


Coinbase has launched a new derivatives exchange in Bermuda, the totemic act showing the largest US crypto exchange taking a stand when it says US crypto regulations are increasingly nonviable. The exchange, which has been publicly feuding with the US Securities and Exchange Commission (SEC) over a number of issues, last month received its license to operate in the island nation as it seeks to test international waters.

Founded in 2012 by CEO Brian Armstrong, Coinbase has grown to become the second largest crypto exchange—behind only HQ-less. binance – By trading volume, largely by working closely with US regulators. Its IPO in 2021 came at the end of a long due diligence process with the SEC that led many to believe the agency backed down on its business model. But over the past few years, under Gary Gensler’s reign as SEC chairman, the company has found itself at odds with the regulator.

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The watchdog agency has blocked several new services Coinbase wanted to bring to market, including a crypto lending program called Earn and a “staking-as-a-service” platform that offers dividend-like yield payments to US users. will offer. Despite being asked several times to “register” with the SEC as an official securities exchange, Coinbase has instead fought a certain battle over which crypto tokens do and do not count as securities (the exchange says it does not list “investment contracts”).

New Bermuda-based Coinbase International Exchange is starting out small – attempting to grab a slice of professional investors and traders outside the US. At writing, the “exchange” is basically just an API, not a dedicated app or website. without, axios informed of, At launch only bitcoin (BTC) and ether (ETH) derivative contracts will be offered, with leverage options capped at 5%.

But the new vertical is also indicative of the growing global perspective of exchange. Although Coinbase has operated across Europe and parts of Asia, Africa and Latin America for years, it has only recently become more vocal about building internationally. In an April blog post, the exchange said it had begun talks with financial regulators in Abu Dhabi (which is building a crypto/fintech sandbox), while Armstrong called on the UK Economic Secretary and Cities Minister Andrew said after a conversation with Griffith. the country isgoing fast On sensible crypto regulation.

Other exchanges have pulled out of the US such as Bittrex, which recently shut down its state operations before being sued by the SEC. Erik Voorhees’ ShapeShift didn’t actually move out of the country, but further into the ether when he spun off his corporate entity to become a Decentralized Autonomous Organization (DAO).

However, by most accounts, many have viewed Coinbase’s message as an empty threat.

Despite efforts to diversify its revenue streams, the exchange essentially only makes money by charging higher-than-average trading fees to US crypto users (people who happily pay for Coinbase’s trusted brand reputation and easy-to-use interface). We do). In its most recent SEC filing, the exchange said the US represents about 40% of its customer base, with 25% each in the EU and the UK.

“As more and more markets move forward with regulatory frameworks to become crypto hubs, we believe the time is right to launch this international exchange,” Coinbase said in its recent announcement. “We wish the US would take a similar approach rather than regulation by enforcement, which has led to a dismal trend for crypto development in the US”

It’s worth saying that Coinbase has written in plain language that it has no immediate efforts to flee the US. “Be assured that Coinbase is committed to the US,” its blog post said. This may be because the exchange seems to have a sound argument when it comes to its increasingly fractious relationship with the SEC. The agency recently sent a “Wells Notice” to Coinbase, stating that the agency is building a case against the exchange.

Coinbase said it would fight the SEC in the courts if a lawsuit is filed. But at this point lawyers for the exchange may try to wait out Gensler’s term. While there’s no guarantee the next SEC chair will be any less lenient, the exchange has allies at the securities agency.

See also: Coinbase Chief Legal Officer Says Exchange Will Go To Court If Necessary , coindesk tv

For example, SEC Commissioner Hester Pierce broke ranks and recently published an account of the commission’s efforts to redefine what it means to legally enforce it on crypto firms, “There was an attempt to solve problems that do not exist.” Furthermore, she added that the SEC’s antagonistic stance against crypto will drive the industry overseas or towards the harder-to-police areas of decentralized finance (DeFi).

Coinbase may prefer to continue operating in the US while building operations elsewhere. But the SEC needs to get the message out soon that at some point the US market may not be worth it. This is especially so as other jurisdictions take a more collaborative approach to regulating crypto. Notably, Hong Kong will revamp its “virtual asset exchange” framework as early as June 1, which could allow operators to open up to retail investors who are currently kept out of markets by China’s Great Crypto Firewall. Are.

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