Coinbase has grown rapidly working with US regulators. Will it expand even further by ignoring the SEC?

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Coinbase has launched a new derivatives exchange in Bermuda, a totemic act showing that the largest US crypto exchange means business when it says US crypto regulations are increasingly unsustainable. The exchange, which has publicly sparred with the US Securities and Exchange Commission (SEC) over a range of issues, received its license to operate in the island nation last month as it seeks to test the waters international.

Founded by CEO Brian Armstrong in 2012, Coinbase has become the second-largest crypto exchange behind non-headquartered Binance by trading volume, largely by working closely with US regulators. Its IPO in 2021 came after a lengthy due diligence process with the SEC, leading many to believe the agency had approved its business model. But for the past two years, under Gary Gensler as SEC Chairman, the company has found itself at an impasse with the regulator.

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The watchdog blocked a number of new services Coinbase wanted to bring to market, including a crypto lending program called Earn and a staking-as-a-service platform that would offer U.S. users yield payouts dividend type. Despite being repeatedly asked to register with the SEC as an official securities exchange, Coinbase has instead fought a definition battle over which crypto tokens do and do not count as securities (the exchange maintains that it does not list investment contracts).

The new Bermuda-based Coinbase International Exchange is modestly beginning an attempt to gain share from professional investors and traders outside the United States. At the time of writing, the exchange is essentially just an API, with no dedicated app or website, Axios reported. Only bitcoin (BTC) and ether (ETH) derivative contracts will be offered at launch, with a leverage option capped at 5%.

But the new vertical is also the sign of an increasingly global perspective of exchanges. Although Coinbase has operated across Europe and parts of Asia, Africa, and Latin America for years, it has recently become more vocal about building internationally. In an April blog post, the exchange said it had begun discussions with financial regulators in Abu Dhabi (which is building a crypto/fintech tech sandbox) while Armstrong, following A conversation with UK Economic Secretary and Minister for the City, Andrew Griffith, said the country is moving rapidly towards sensitive crypto regulation.

Other exchanges pulled out of the US, such as Bittrex, which recently closed its US operations shortly before being sued by the SEC. Eric Voorhees Shapeshift didn’t exactly leave the country, but went further into the ether when it shut down its corporate entity to become a Decentralized Autonomous Organization (DAO).

However, by most accounts, many saw Coinbases messaging as an empty threat.

Despite attempts to diversify its revenue streams, the exchange essentially only makes money by charging US cryptocurrency users above-average trading fees (which people seem to happily pay for the Coinbases trusted brand reputation and an easy-to-use interface). In its latest filing with the SEC, the exchange said the US accounts for around 40% of its customer base, with an additional 25% in the EU and UK.

“As more and more markets move forward with regulatory frameworks to become crypto hubs, we believe the time is right to launch this international exchange,” Coinbase said in its latest announcement. “We would like to see the United States take a similar approach instead of regulation by enforcement, which has led to a disappointing trend for crypto development in the United States”

It’s worth saying that Coinbase has made it clear in plain language that it has no immediate attempt to flee the US “Rest assured that Coinbase is committed to the US,” its blog post said. comes to its increasingly strained relationship with the SEC. The agency recently sent Coinbase a Wells Notice, informing it that the agency is building a case against the exchange.

Coinbase said it would fight the SEC in court if sued. But at this point, stock market lawyers may just be trying to wait out Gensler’s tenure. While there’s no guarantee the next SEC chairman would be any less lenient, the stock market has allies at the securities agency.

SEC Commissioner Hester Pierce, for example, broke ranks and recently released her dissenting opinion stating that the commissions’ attempts to redefine what an exchange legally means to apply to crypto businesses was an attempt to solve problems that do not exist. Additionally, she said the SEC’s adversarial stance against crypto would drive the industry overseas or into harder-to-police areas of decentralized finance (DeFi).

Coinbase may prefer to continue operating in the United States while expanding operations elsewhere. But the SEC must quickly make it clear that at some point the US market may not be worth it. This is especially true as other jurisdictions take a more collaborative approach to regulating crypto. Notably, Hong Kong will revamp its virtual asset trading framework as of June 1, which could allow operators to open up to retail investors currently kept out of the markets by China’s Great Crypto Firewall. .

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