Brian Armstrong, chief executive of Coinbase, said the US-listed cryptocurrency exchange may consider investing more overseas, or even relocate, if regulatory clarity around crypto and digital assets does not emerge in the US.
Armstrong took part in a Fireside Chat at the Innovate Finance Global Summit on 18 April in London. He said the US has the potential to be an important market in crypto, but right now it does not have the required regulatory clarity.
Brian Armstrong, Coinbase
“If we don’t see regulatory clarity emerging in a number of years, we may consider investing more in other regions including relocating,” he added. “Most of the major financial hubs have started to move towards clarifying crypto regulation but the US is dragging its feet.”
Coinbase has been fighting to get clear regulatory clarity in the US for the last 10 to 11 years according to Armstrong.
“We have contradictory statements from the head of the CFTC and the SEC coming out almost every few weeks, so how is the business supposed to operate in that environment ?” he added. “We just want a clear roadmap.”
Armstrong asserted that the US Securities and Exchange Commission does not have a clear rulebook for crypto and instead, relies on random enforcement actions. Coinbase had met the regulator more than 30 times to explain its business in detail but never received any feedback according to Armstrong. Instead, the company received a Wells Notice from the SEC, which is an intent to bring an enforcement action.
Right now, a huge focus is across the Atlantic from our home nation. This week, our CEO @brian_armstrong is in the UK, one of our fastest-growing user markets. While there, the EU will be adopting the landmark #MiCA regulation, at the @Europarl_EN in Strasbourg.
— Coinbase (@coinbase) April 17, 2023
In March 2023 Paul Grewal, chief legal officer of Coinbase, said in a blog that the Wells notice was related to an undefined portion of the firm’s listed digital assets, it’s staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
“Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the U.S. cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done,” Grewal wrote. “This unfair approach will only drive innovation, jobs, and the entire industry overseas. At our core, we are the very same company that we were on April 14, 2021 when we became a public company at the end of the lengthy process with the SEC itself.”
Grewal continued that Coinbase was confident in the legality of its assets and services, and if needed, the firm would welcome a legal process to provide the clarity and to demonstrate that the SEC has not been fair or reasonable when it comes to its engagement on digital assets.
Armstrong said: “We may ultimately need to go to the courts, and we are happy to go to the courts as case law gives greater clarity.”
The chief executive added that the crypto industry realises that it will be regulated in some way. He believes centralised players in crypto such as exchanges, custodians and companies like Coinbase should be regulated as financial services providers as they hold customer funds. In contrast, the decentralised pieces of crypto, which have no central authority to regulate – such as bitcoin ethereum or self-custody wallets – should be regulated like software businesses.
Barnabas Reynolds, Shearman & Sterling
Barnabas Reynolds, partner and global head of the financial services industry group at law firm Shearman & Sterling, told Markets Media there is a massive opportunity for the UK to attract digital asset and crypto firms due to its system of case law and style of regulation.
“For the rest of the world, the UK legal system is a magnet,” Reynolds said. “We are sitting on a killer app which just needs to be applied properly and quickly, as there is everything to play for.”
In contrast, Reynolds described the US regime as fragmented and punitive, and the European Union’s MiCA as not user-friendly and the “product of notions conceived in a library.”
MiCA
On 20 April 2023 the EU Parliament voted to pass MiCA (Markets in Crypto Assets), the first rules for crypto asset service providers and assets, including stablecoins, across the entire trading bloc.
Stefan Berger, lead MEP for the MiCA regulation, said in a statement that MiCA puts the EU at the forefront of the token economy with 10,000 different crypto assets. Berger said: “This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”
Parliament has endorsed the first EU rules to trace crypto-asset transfers, prevent money laundering, as well as common rules on supervision and customer protection.
Press release: https://t.co/t105fHevXz pic.twitter.com/UycXJwDJRF
— European Parliament (@Europarl_EN) April 20, 2023
Coinbase said in a blog that the European Parliament’s adoption of MiCA is a pivotal moment for crypto in the region
“MiCA is a comprehensive regulatory framework – the first of its kind – and will provide clarity to crypto firms operating across the 27 EU member states,” added Coinbase. “The region truly is recognising the potential and societal promise that emerging technology can provide.”
Reynolds said the necessary UK legislation could be completed this year with sufficient resources. For example, Shearman & Sterling completed the legal framework for Abu Dhabi Global Market in a year and a half.
“For existing assets to be digitised does not require a significant change in UK regulation; tokens can be linked to existing assets, or free-floating, and the rulebooks for each can be kept simple,” added Reynolds.
MiCA has been passed following the collapse of crypto exchange FTX and the downturn in market prices for cryptocurrencies. Armstrong said he has been in crypto since 2011and these cycles are not uncommon.
Throughout history there has been a common pattern related to all new technologies including the radio, telephone, television or railroads. There is a wave of excitement and irrational exuberance when hundreds of companies get formed and expectations are a little ahead of reality. Subsequently there is consolidation and some companies go out of business, but Armstrong said the real builders persist and indeed, some of the most valuable companies in the world were built in down markets as they take a long-term approach.
“We are seeing all kinds of innovation happening,” said Armstrong. “There is an AI revolution and I think crypto is also one of the most important technology trends.”
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