Despite US’s ‘Disjointed’ Approach, Coinbase Is Well-Regulated
In its earnings report for the fourth quarter of 2022, crypto giant Coinbase pointed to regulation and how the company is positioned in the U.S. as a strength.
“We remain committed to working with global regulators and policymakers to drive prudent regulation in this emerging asset class,” the company said in a letter to shareholders that accompanied the report.
Still, Coinbase painted a tough picture for the U.S. digital asset market.
While the SEC is trying to expand its authority, other agencies seem to want to keep crypto out of the regulatory realm, Coinbase said, pointing to recent warnings from U.S. bank regulators to financial institutions not to hold crypto on public blockchains.
As a result, some banks have felt pressure to provide fewer basic services to crypto companies, Coinbase said. It added that it would keep working with banks around the world to work through these challenges, showing how serious and mature Coinbase has been about keeping these important relationships.
During the company’s earnings call, CEO Brian Armstrong echoed the sentiment, saying “policy is my top priority for this year.”
The way the U.S. acts
The biggest exchange in the U.S. said that the way the U.S. regulates crypto is “disjointed,” and it repeated its call for federal laws and public rulemaking about digital assets.
After several high-profile crypto startup failures in 2022, the Securities and Exchange Commission began updating custodial laws to specifically cover cryptocurrencies last week. Executives at Coinbase have said that they are ready for the change, but SEC Chair Gary Gensler has cast doubt on whether any crypto companies are following the rules for protecting assets.
The SEC has also raised questions about staking-as-a-service businesses for crypto companies. Two weeks ago, it announced a $30 million settlement with U.S. exchange Kraken. Coinbase has said that its own staking business will not be affected.
“We do not believe we have broken any securities laws. Coinbase staking products are not securities, and USD Coin (USDC) is not a security,” the company said in its report on Tuesday. It also said that it does not have an exchange token, does not offer high leverage products to customers, and does not act as a market maker, all of which have caused a lot of scrutiny of other companies.
Still, in its 10-K filing with the SEC, Coinbase noted risks related to the regulatory environment, noting that, “We are subject to an extensive, highly-evolving and uncertain regulatory landscape,” and a failure to comply with laws and regulations, “could adversely affect our brand, reputation, business, operating results, and financial condition.” The filing also notes that some of its competitors are “regulated or less regulated companies”.
The company also said it had “shortcomings” in the past when it came to following U.S. financial laws. It was referring to a $100 million consent order it signed with the New York Department of Financial Services, a state regulator, for what the agency called “significant failures” to follow anti-money laundering and suspicious activity reporting laws. Coinbase agreed to pay a $50 million fine and spend the same amount of money to make sure it followed the law.
“Putting in the work”
Armstrong, the CEO of Coinbase, said on the company’s earnings call that he spent part of last week lobbying Congress. He also said that other countries are further ahead of the U.S. when it comes to crypto policies.
In its report, Coinbase said that there were some reasons to be optimistic about crypto policy. It pointed to changes in India, Brazil, the UK, and the EU, where the importance of the MiCA framework, which was finished last year, “cannot be overstated.”
“These international jurisdictions are doing the hard work of drafting fit-for-purpose rules to govern the industry, which will benefit both consumers and industry participants alike,” Coinbase said.
