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Hello and welcome to a special edition of the FT’s Cryptofinance newsletter. This week, I’m focusing on my recent interview with Coinbase chief executive Brian Armstrong.
What a difference a year makes.
When we launched our cryptofinance newsletter last summer, asset managers such as Abrdn, BlackRock and Charles Schwab were busy tying products to digital assets, crypto evangelists were flexing ethereum’s switch to a greener blockchain, and FTX’s Sam Bankman-Fried was turning heads in Congress and snapping up celebrity endorsements.
Fast-forward 12 months, and crypto’s enthusiasts have been well and truly humbled. FTX’s catastrophic bankruptcy in November — described as one of the biggest financial frauds in American history — kick-started an unprecedented crackdown on digital assets by American regulators, chiefly the Securities and Exchange Commission, which this year filed lawsuits against industry heavyweights including publicly traded crypto exchange Coinbase.
Led by chief executive Brian Armstrong, Coinbase has assumed the mantle for the American crypto industry in its battle against SEC chair Gary Gensler, who has previously described crypto as a market “rife with non-compliance”.
To — belatedly — mark this newsletter’s first anniversary, I spoke to Armstrong about the future of his company and what he has described as “the most important technology to update the financial system”.
As we reported this week, Armstrong told me that the SEC asked Coinbase to delist every token other than bitcoin before it filed its lawsuit against the exchange earlier this summer. The move would have crippled Coinbase’s business — not to mention the broader crypto industry in the US — Armstrong said, and shows how the SEC once sought a much broader authority over crypto than its lawsuit against the company implies. Read my story here.
But the Coinbase chief had plenty more to say during our late-evening Zoom call, doubling down on his commitment to stick it out in the US despite the regulatory crackdown on digital assets.
Coinbase is facing down a total of 10 state regulators, several of which have issued cease and desist orders against the company’s staking service. Staking involves users locking in their crypto holdings on Coinbase for a set period, and using them to support the functioning of blockchain projects that can offer interest or yield.
Earlier this summer, Alabama state securities regulators filed an order that gave Coinbase 28 days to prove it wasn’t selling unregistered securities in the state. The order was the work of a multi-state taskforce that includes four states where Coinbase has since paused staking operations: California, New Jersey, South Carolina and Wisconsin.
When I covered Coinbase’s staking strife in June, a person familiar with the matter told me Coinbase was in discussions with state regulators and extensions had been given to the company. On Monday, Armstrong not only told me Coinbase would fight on all 10 fronts, but his plan is to eventually expand staking services across all 50 states in the country.
“[Staking] is an incredible technological development, so it was really disappointing to see states like California, which are in theory technology leaders globally, taking that stance . . . I do feel it was a mistake that they did that,” Armstrong said.
It’s hard to imagine Armstrong surrendering the staking business without a fight. After all, it represented 10 per cent of the group’s revenue in the first quarter of this year, and is an integral part of Armstrong’s attempt to diversify income streams for the company after it was stung by a downturn in transaction revenue during last year’s unprecedented crypto market crash.
The man behind America’s only publicly traded crypto exchange was just as defiant when I asked him if Coinbase could move to friendlier crypto shores, as many other digital asset companies are doing amid America’s war on the industry.
“It’s not even in the realm of possibility right now,” he said. “There is no break glass plan. We’re staying 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 suggested “anything was on the table” for Coinbase’s future. Coinbase also secured a licence in Bermuda this year, which fuelled speculation the exchange’s future lay offshore.
But judging by his comments to me, the embattled American crypto industry can rest easy that it won’t be losing its biggest name. In fact, Armstrong said Coinbase would stay on Team America even if it were to lose its case against the SEC.
“Those licences we’re acquiring internationally are not contingency plans, they’re international expansion plans,” he continued.
The fact is, Armstrong doesn’t really have a choice. In 2022, Coinbase made almost $2.7bn in revenue in the US. In comparison, revenue from the rest of the world was just over $500mn, with no other individual country accounting for more than 10 per cent of the pie.
The “worst-case scenario”, he suggested, would be having to delist 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 references 13 of them, so this is not an existential issue for us, it’s actually business as usual,” he said, adding loss of these tokens would probably not be “a substantial or material amount of revenue”.
Good thing Coinbase didn’t agree to delist everything but bitcoin, eh?
What are your thoughts on Brian Armstrong’s view of the future for Coinbase? As always, email me at scott.chipolina@ft.com.
Weekly highlights:
I’ve served you a Coinbase-heavy diet of late, so to round things off, here are some of the non-Coinbase highlights of the week.
Trading volume between the Russian rouble and Tether’s USDT stablecoin surged an eye-popping 277 per cent amid the Wagner Group’s attempted insurrection earlier this summer, indicating that Russians were rushing to find an alternative to the country’s weakening currency. The increase also shows how dollar-pegged cryptocurrencies can act as an alternative store of value in economies under heavy sanctions — as long as they maintain their peg, of course. Check out my story here.
The US Office of Foreign Assets Control this week put 24 individuals and 29 entities under sanctions for alleged links to Isis-Khorasan — the Isis terror group’s Afghanistan affiliate — and al-Qaeda. Blockchain tracing firm Elliptic discovered that the majority of funds belonging to Ali Shafiu, described as Isis-K’s “apparent representative in the Maldives”, were held in Tether’s USDT.
The largest crypto 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 crypto company Sakura Exchange BitCoin late last year, and also comes after Japan’s Financial Services Agency warned consumers in 2018 and 2021 that the exchange was conducting unauthorised transactions. The regulator has not responded to a request for comment.
Cryptofinance this week is edited by Tommy Stubbington. Please send any thoughts and feedback to cryptofinance@ft.com.
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