“Crypto Isn’t Going Anywhere” After FTX Collapse

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Coinbase co-founder and CEO Brian Armstrong wrote a blog post this week about the future of crypto regulation as the industry writhes under the weight of the collapse of rival FTX.

Axios spoke with Armstrong about FTX, what he wants Congress to do, and the future of his company. The following transcript has been edited for length.

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Is the crypto industry in an existential crisis?

No, not existential. He basically has a black eye because he attracted his unfair share of scammer[s] and scammers over the years. Some of it was just bad management if you look at something like Mt. Gox, but with FTX it seems like a real fraud.

But that’s not representative of the entire industry, and crypto isn’t going anywhere. It’s like Bernie Madoff or someone like that in the traditional funding system. It’s frustrating and makes everyone take a closer look at everything.

Madoff was a relatively small player. Wouldn’t it be more like something like Fidelity going bankrupt?

Sort of, but it’s a new industry. Loyalty has been around for a long time. FTX only started a few years ago, and skyrocketed and it was too good to be true.

i went to an a16z [Andreessen Horowitz] Crypto conference a few weeks ago and there were about 100 companies in the audience who were all working hard legitimately but they weren’t making the headlines.

This is one of the frustrating things, that sometimes the most attention seeking, or flamboyant people get too much attention. But for every one of those companies, there are so many doing head-on good work in IT; They’re nerds, so they’re not the most outgoing people.

Where does this crypto winter fall on the gravity spectrum?

It’s kind of like Mt. Gox… after 18 months people left and nobody asked me after that.

Has the FTX contagion been contained?

I think there might be a bit more contagion from FTX, but hopefully [everything moves] in the system over the next few months or quarters at most.

Regulation

SEC Chairman Gary Gensler said he has enough tools to regulate crypto. Is he wrong?

It’s not up to me to say if he’s right or wrong.

Crypto is a variety of things, so there are crypto products that should be regulated by the CFTC, there are crypto securities that should be regulated by the SEC, and there are other things in crypto like stablecoins that maybe should be treasury regulated, or even crypto not tied to financial services like artwork.

The CFTC and SEC have the tools they need to regulate their respective areas of crypto, but what they lack is a clear agreement on which crypto assets are commodities and which are commodities. securities. There has been a missed opportunity to come together to release this clarity and protect American citizens. Since that hasn’t happened, I think we’re going to have to see Congress pass new legislation that forces clarity so these two regulators stop having a turf battle.

Will it happen?

I hope FTX is a catalyst, just like after Enron we saw Sarbanes-Oxley and after the 2008 financial crisis we saw Dodd-Frank.

Do you think we will pass a crypto bill in 2023?

It could start with a stablecoin bill, and I think there’s a good chance it will pass in Q2, as there seems to be a lot of interest from everyone, from Rep Maxine Waters, D-Calif. To Rep. Patrick McHenry. (RN.C.). Even Sen. Sherrod Brown (D-Ohio) sent a letter to Treasury Secretary Yellen calling for guidance. I think it’s relatively uncontroversial.

Then if we can get that clarity, I think something for centralized players could happen in 2023 as well. A bill that includes things like AML/KYC programs for centralized exchanges and custodians, and clarity what a security is in relation to a commodity.

It is also important to preserve the decentralized aspects of crypto in terms of innovation potential.

FTX was based in the Bahamas. How do you envision the American regulation of offshore players?

We must ensure that the level playing field is applied. I can sympathize with regulators because their general operational mandate is to focus on their domestic markets so they don’t always think about how to engage with a foreign company seeking to serve domestic citizens. But the world’s major financial markets have global weapons, and they’re going to have to work with international law enforcement to collaborate on more of these things.

The DOJ, for example, is international in scope, which is why they engage on the FTX situation.

What was Sam Bankman-Fried’s legacy in crypto regulation?

He was very active in DC In some ways, he moved some parts of the conversation forward, but ultimately didn’t add much to the discussion given the fraud that blew everything up.

The company

Is Coinbase’s core business transitional, given the growth of DeFi?

No. Well, sit here two decades from now and people will still be trading a lot of crypto through centralized exchanges. But decentralized exchanges and self-custodial wallets will also grow, and Coinbase is participating in both of these areas as well. For example, Coinbase Wallet has been the most downloaded self-custodial wallet in the United States over the past year.

I think it’s important that people get into crypto first by converting fiat to crypto through centralized products, but then they often want to move from that to the decentralized economy.

Source: Axios Visuals

Coinbase succeeds when the volume and prices of crypto transactions increase. So what’s the argument for buying Coinbase stock, as opposed to just buying bitcoin or a basket of crypto assets?

I think people should do both. The bullish case for Coinbase is the market leader from a trust perspective and the largest [exchange] in the US The market is giving us very clear feedback that they want to work with trusted companies if they are centralized players…

Well, also benefit from increased regulation and diversification of our revenue streams away from trading fees. For example, 36% of our third quarter revenue came from subscriptions and services. We planted these seeds years ago and they are beginning to materialize and make us more resilient.

Your stock is down about 86% this year and your debt is trading at about 50 cents on the dollar, even though you have plenty of cash. So what annoys you more, equity investors or debt investors?

I don’t know what to say about this. We were sometimes tempted to think about our options there…

You mean buy back some of the debt?

We’ve considered all sorts of options, but have nothing to share at this time.

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