Coinbase considers US future as crackdown rolls on

Hello and welcome to the latest edition of the FT’s Cryptofinance newsletter. This week, we’re taking a look at Coinbase’s threats to leave the US.

I may have taken time off over Easter but it appears the US regulators busy cracking down on crypto did not.

On Monday Bittrex and its co-founder and former chief executive William Shihara were charged by the Securities and Exchange Commission with allegedly operating an unregistered securities exchange, broker and clearing agency in the US.

The charges come only weeks after Bittrex said it was packing up in the US, lamenting that “regulatory requirements are often unclear and enforced without appropriate discussion or input”.

It’s not the only exchange contemplating life outside the US as the SEC’s prosecution of crypto shows little sign of slowing. San Francisco-based Coinbase chief executive Brian Armstrong, who at best has a rocky relationship with American regulators, again threatened to do the same during a trip to London this week.

“Anything is on the table,” he said, promising that Coinbase is prepared to relocate should the US keep up what it sees as undue pressure on crypto companies.

During an interview with me this week, Coinbase’s vice-president of international and business development Nana Murugesan doubled down on its stance.

“From day one the mission has been increasing economic freedom in the world. If we don’t feel like we can do that, something will have to change,” he told me at Coinbase’s office in the City of London.

Perhaps as a precaution and to increase its global footprint, Coinbase received a licence on Thursday to operate in Bermuda. The blog post described Bermuda as a jurisdiction “long known for a high level of rigour, transparency, compliance and co-operation”.

Coinbase hasn’t committed to moving headquarters, but it would still be a huge moment if it did leave the US. It is listed there, on Nasdaq, and its management has deep roots in the country. Armstrong, for example, has a (very big and desirable) property there.

But even if they did walk away from the US, would it actually matter?

At an appearance in Washington this week Gary Gensler, chair of the SEC, appeared little concerned with details like where someone is based.

“I’ve been around finance for over 40 years . . . I’ve never seen a field that’s so non-compliant with laws written by Congress and affirmed by the courts. This is largely, unfortunately for the investing public, a non-compliant field,” he said.

And Coinbase is overwhelmingly dependent on the States for business. Last year revenues from the US were nearly $2.7bn. The rest of the world totalled just over $500mn, and no other individual country accounted for more than 10 per cent of its total revenue.

In 2021, when the world battled against a historic pandemic called “fear of missing out”, induced by record-high crypto prices, Coinbase’s turnover from US customers was $6.3bn and only $1.5bn from customers located elsewhere.

The charges brought against Binance from the Commodity Futures Trading Commission suggest regulators don’t like crypto exchanges helping US businesses to move their activity abroad either.

Going after people like Binance’s Changpeng Zhao or Terra Network’s Do Kwon is also a reminder that US regulators don’t care where a company is based if they think American investors have been harmed or exposed to undue risk. And if authorities bring criminal charges, then US citizens can be extradited, as FTX’s Sam Bankman-Fried knows all too well.

“[The US] try to extend their jurisdiction and reach beyond the territoriality of the United States to the extent that US investors are impacted, so to the extent that people try to move crypto offshore, I don’t think it will chill the regulatory wheel,” said Mark Kornfeld, shareholder at law firm Buchanan Ingersoll & Rooney PC.

What are your thoughts on Coinbase’s potential search for a new home? As always, email me your thoughts at scott.chipolina@ft.com.

Join me and FT colleagues at the FT’s Crypto and Digital Assets Summit on May 9-10 as we discuss where the digital assets market is heading. Also appearing at the event will be UK’s economic secretary to the Treasury Andrew Griffith and Hester Peirce of the US Securities and Exchange Commission. Register for your pass here.

Weekly highlights

European lawmakers reached final agreement on Mica, the EU’s flagship legislative package designed to oversee the digital assets space. Mattias Levin of the European Commission’s Digital Finance Unit said: “This is the first comprehensive piece of regulation of crypto assets in the world, and we hope and trust that other regulators will follow suit.”
Auction house Sotheby’s will sell off the collection of non-fungible tokens owned by Three Arrows Capital, the crypto hedge fund that collapsed in spectacular fashion last summer. “Collections are often representative of the time and place from which they were formed, telling a unique story through their artworks,” the press release stated. Indeed.
In the latest saga facing Binance US’s proposed acquisitions of assets belonging to bankrupt Voyager Digital, a court filing this week paved the way for some aspects of the deal to be agreed. The deal, however, is still under review by the Committee on Foreign Investment in the United States, which is screening the proposal for any potential national security risks.
The Ontario Teachers’ Pension Plan is the latest high-profile investor in now-bankrupt exchange FTX to reckon with its decision to jump on the crypto bandwagon. The organisation, which is responsible for pensions among Ontario’s educators, said it was unlikely to dabble in digital assets again. Check out the story by my colleagues Josephine Cumbo and Arash Massoudi.

Soundbite of the week: Gary Gensler gets grilled

Gary Gensler’s stance on crypto is clear enough, but during his appearance on the Hill this week, the SEC chief encountered stiff opposition from one of crypto’s biggest American advocates, Representative Tom Emmer (R-MN).

“Your regulatory style lacks flexibility and nuance, and as a result, you’ve been an incompetent cop on the beat, doing nothing to protect everyday Americans and pushing American firms into the hands of the Chinese Communist party.”

Data mining: American crypto

The long-running theme — reiterated by Brian Armstrong and a few politicians this week — is that the US risks losing its slice of an innovative, revolutionary industry as a blizzard of enforcement and lack of clarity on rules drives out business.

Yet America’s share of crypto spot trading volume, on exchanges at least, has hovered unremarkably around 10 per cent since the start of last year, according to analytics platform CCData.

Long story short, crypto’s threats to leave the US remain a lot of bark but no bite.