Coinbase Chief Stuns World with Mind-Blowing Statement: US Exit Completely Unthinkable!

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Hello and welcome to a special edition of the FT Cryptofinance newsletter. This week, I’m going to focus on my recent interview with Coinbase CEO Brian Armstrong.

What a difference a year makes.

When we launched our cryptofinance newsletter last summer, asset managers like Abrdn, BlackRock and Charles Schwab were busy tie products to digital assetscryptocurrency evangelists were flexing Ethereum move to a greener blockchainand FTX’s Sam Bankman-Fried was turning heads in Congress and getting celebrity endorsements.

Fast forward 12 months and crypto enthusiasts have been truly humbled. The catastrophic failure of FTX in November – described as one of the largest financial frauds in American history – ignited an unprecedented crackdown on digital assets by American regulators, mainly the Securities and Exchange Commission, which this year he filed suit against industry heavyweights, including Publicly traded cryptocurrency exchange Coinbase.

Led by Chief Executive Officer Brian Armstrong, Coinbase has taken over the role of the American cryptocurrency industry in its battle against SEC Chairman Gary Gensler, who previously described cryptocurrencies as a market “rife with non-compliance”.

To mark the belated one-year anniversary of this newsletter, I spoke with Armstrong about the future of his company and what he described as “the most important technology for updating the financial system.”

As reported this week, Armstrong told me the SEC asked Coinbase to delist every non-bitcoin token before filing a lawsuit against the exchange earlier this summer. The move would cripple Coinbase’s business, not to mention the broader cryptocurrency industry in the U.S., Armstrong said, and shows how the SEC once sought much broader authority over cryptocurrencies than its lawsuit implies. against the company. Read my story Here.

But the Coinbase boss had more to say on our late-night Zoom call, redoubling his pledge to hold on in the US despite the regulatory crackdown on digital assets.

Coinbase is facing a total of 10 state regulators, many of which have issued cease-and-desist orders against the firm’s staking service. Staking involves users locking up their cryptocurrencies on Coinbase for a specified period and using them to support the functioning of blockchain projects that can offer interest or returns.

Earlier this summer, Alabama state securities regulators filed an order giving Coinbase 28 days to prove it was not selling securities not registered in the state. The order was the work of a multi-state task force that includes four states where Coinbase has since suspended staking operations: California, New Jersey, South Carolina and Wisconsin.

When I covered Coinbase’s staking conflict in June, a person familiar with the matter told me that Coinbase was in talks with state regulators and that extensions had been granted to the company. Not only did Armstrong tell me on Monday that Coinbase would fight on all 10 fronts, but his plan is to expand staking services to all 50 states across the country.

“[Staking] it’s an incredible technological development, so it was really disappointing to see states like California, which are supposedly global technology leaders, take that position. . . I feel it was a mistake that they did that,” Armstrong said.

It’s hard to imagine Armstrong giving up the stakeout business without a fight. After all, it represented 10% of group revenue in the first quarter of this year and is integral to Armstrong’s attempt to diversify income streams for the company after it was hit by a decline in transaction revenues during the unprecedented cryptocurrency last year. market crash.

The man behind America’s only publicly traded cryptocurrency exchange was equally provocative when I asked him if Coinbase could move to more crypto-friendly shores, as many other digital asset companies are doing during America’s war on the sector.

“It’s not even in the realm of possibility right now,” she said. “There is no plan to break the glass. Let’s stay in the United States.”

Just a few months ago, Armstrong openly flirted with the idea of ​​relocating the company. During an April visit to London, he hinted that “everything was on the table” for the future of Coinbase. Coinbase also secured a license in Bermuda this year, which has fueled speculation about the future of the offshore exchange.

But judging by his comments, the US cryptocurrency industry can rest assured that it will not lose its biggest name. In fact, Armstrong said Coinbase would remain on Team America although he would lose his case against the SEC.

“Those licenses that we are acquiring internationally are not contingency plans, they are international expansion plans,” he continued.

The thing is, Armstrong really has no choice. In 2022, Coinbase made nearly $2.7 billion in revenue in the United States. By comparison, revenue from the rest of the world was just over $500 million, with no other single country accounting for more than 10% of the pie.

The “worst-case scenario,” he suggested, would be having to eliminate the 13 crypto tokens listed as securities in the regulator’s lawsuit against the exchange.

“We have about 240 assets listed on the platform, the SEC case refers to 13, so this is not an existential issue for us, it’s actually normal,” he said, adding that the loss of these tokens probably would not be “a revenue substantial or material”.

Good thing Coinbase didn’t agree to phase out everything but bitcoin, huh?

What do you think of Brian Armstrong’s vision for the future for Coinbase? As always, write me at scott.chipolina@ft.com.

Weekly Highlights:

I’ve been serving you a Coinbase-heavy diet lately, so to wrap up, here are some of the week’s non-Coinbase highlights.

• Trading volume between the Russian ruble and Tether’s stablecoin USDT jumped a staggering 277% during the Wagner Group’s attempted insurrection earlier this summer, indicating that Russians were scrambling to find an alternative to the currency weakened country. The increase also shows how dollar-pegged cryptocurrencies can serve as an alternative store of value in heavily sanctioned economies – as long as they maintain their peg, of course. Check out my story Here.

• The US Office of Foreign Assets Control this week fined 24 individuals and 29 entities for alleged ties to ISIS-Khorasan – the affiliate of the ISIS terror group in Afghanistan – and al-Qaeda. Blockchain tracking company Elliptic discovery that most of the funds belonging to Ali Shafiu, described as the “apparent representative in the Maldives” of Isis-K, were held in Tether’s USDT.

• Major cryptocurrency exchange Binance this week announced the launch of Binance Japan, the group’s “new platform designed for the Japanese market.” The move follows Binance’s acquisition of Japanese cryptocurrency firm Sakura Exchange BitCoin late last year, and also comes after the Japan Financial Services Agency warned consumers in 2018 and 2021 that the exchange he was conducting unauthorized transactions. The regulator did not respond to a request for comment.

Cryptofinance this week is curated by Tommy Stubbington. Please send any thoughts and feedback to cryptofinance@ft.com.