Coinbase is opening a derivatives exchange in Bermuda to diversify its revenue streams as the largest U.S. crypto exchange continues to feud with the U.S. Securities and Exchange Commission. The so-called Coinbase International Exchange will offer bitcoin (BTC) and ether (ETH) futures at launch to professional investors outside the U.S., with plans to expand. Likewise, Gemini announced the launch of its own international crypto derivatives exchange today. This comes as Citi bank published a report stating regulatory uncertainty in the U.S. has dimmed the prospects for U.S. exchange. The bank cut its stock rating of $COIN to “neutral.” Finally, storied auction house Sotheby’s has launched an on-chain trading platform for NFT secondary markets while decentralized NFT marketplace Blur released a fee-less, peer-to-peer lending platform. Blend, as the tool is called, was built in collaboration with Paradigm head of research Dan Robinson (a notable Uniswap backer) to help users finance purchases of “blue chip” NFTs.
Corporate Selling
Michael Saylor’s MicroStrategy (MSTR) booked a far smaller accounting writedown tied to its bitcoin (BTC) holdings last quarter versus the final three months of 2022, helped by the cryptocurrency’s recent rally. The company’s impairment loss was only $18.9 million for Q1, down from $197.6 million in Q4. The company also bought more bitcoin last quarter (bringing its holdings to 140,000 BTC) and paid off its overhanging loan to shuttered bank Silvergate. Elsewhere, Ripple sold $336 million worth of XRP tokens in Q1, up from $226.31 million in the previous quarter, according to the latest XRP Markets Report. The sales were reportedly in connection with Ripple’s on-demand liquidity product called XRP Ledger. And finally, a new type of token built by a pseudonymous on-chain analyst to facilitate Bitcoin-based NFT trading has seen a staggering jump in use. The “Bitcoin Request for Comment” token, aka BRC-20, which launched in March, now has a market cap over $137 million (up from $17.5 million last week).
Publicly Chaffed
The founders of defunct crypto hedge fund Three Arrows Capital, Kyle Davies and Su Zhu, were formally reprimanded by Dubai’s Virtual Assets Regulatory Authority for illegally marketing their new bankruptcy claim trading exchange, called OPNX, to residents of Dubai and the United Arab Emirates. The securities watchdog claimed the duo are operating an unlicensed exchange, and sent them at least two cease-and-desist letters. Dubai also reprimanded OPNX co-founders Mark Lamb and Sudhu Arumugam as well as CEO Leslie Lamb. Elsewhere, TRON founder Justin Sun was accused of gaming the launch of SUI token trading on Binance, and has refunded the exchange $56 million in stablecoins. “Binance Launchpool are meant as air drops [sic] for our retail users, not just for a few whales,” Binance CEO Changpeng Zhao tweeted, describing the launch of the token for the much-anticipated layer 1 blockchain Sui.
Sound Bites
“A lot of these exchanges are going to be looking back at what they were doing…This is an opportunity for them to come clean.”
Coinbase has launched a new derivatives exchange in Bermuda, a totemic act showing the largest U.S. crypto exchange means business when it says U.S. crypto regulations are increasingly nonviable. The exchange, which has been publicly feuding with the U.S. Securities and Exchange Commission (SEC) over a range of issues, received its license to operate in the island nation last month as it looks to test the international waters.
Founded by CEO Brian Armstrong in 2012, Coinbase has grown to become the second-largest crypto exchange – trailing only the HQ-less Binance – by trading volume, largely by working closely with U.S. regulators. Its IPO in 2021 came at the end of a lengthy diligence process with the SEC, leading many to think that the agency had endorsed its business model. But over the past couple of years, under Gary Gensler’s regime as chairman of the SEC, the company has found itself at an impasse with the regulator.
The watchdog agency has 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 dividend-like yield payments. Despite being asked numerous times to “register” with the SEC as an official securities exchange, Coinbase has instead fought a definitional battle over which crypto tokens do and do not count as securities (the exchange maintains it does not list “investment contracts”).
The new Bermuda-based Coinbase International Exchange is starting small – an attempt to gain a sliver of the share of professional investors and traders outside the U.S. At writing, the “exchange” is basically just an API, without a dedicated app or website, Axios reported. Only bitcoin (BTC) and ether (ETH) derivatives contracts will be offered at launch, with leverage option capped at 5%.
But the new vertical is also a sign of the exchange’s increasingly global perspective. 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 has begun talking with financial regulators in Abu Dhabi (which is building a crypto/fintech tech sandbox) while Armstrong, following a conversation with the U.K.’s Economic Secretary and City Minister, Andrew Griffith, said the country is “moving fast on sensible crypto regulation.”
Other exchanges have pulled out of the U.S. such as Bittrex, which recently shuttered its stateside operations shortly before being sued by the SEC. Eric Voorhees’ Shapeshift didn’t exactly exit the country, but did move further into the ether when it closed its corporate entity to become a decentralized autonomous organization (DAO).
However, by most accounts, many have seen Coinbase’s messaging as an empty threat.
Despite attempts to diversify its revenue streams, the exchange essentially only makes money by charging U.S. crypto users above-average trading fees (which people seem to happily pay for Coinbase’s trusted brand reputation and easy-to-use interface). In its most recent SEC filing, the exchange said the U.S. represents roughly 40% of its customer base, with another 25% in the EU and U.K.
“As more and more markets are moving forward with regulatory frameworks to become crypto hubs, we believe the moment is right to launch this international exchange,” Coinbase said in its most recent announcement. “We would like to see the U.S. take a similar approach instead of regulation by enforcement, which has led to a disappointing trend for crypto development in the U.S.”
It’s worth saying that Coinbase spelled out in plain language that it has no immediate attempts to flee the U.S. “Rest assured that Coinbase is committed to the U.S.,” its blog post said. This might be because the exchange thinks it has a sound argument when it comes to its increasingly fraught relationship with the SEC. The agency recently sent Coinbase a “Wells Notice,” tipping it off that the agency is building a case against the exchange.
Coinbase said it would fight the SEC in the courts if it is sued. But at this point the exchange’s lawyers may just be attempting to wait out Gensler’s tenure. Although there’s no guarantee the next SEC chair would be any less lenient, the exchange does have allies at the securities agency.
SEC Commissioner Hester Pierce, for instance, broke ranks and recently published her dissenting opinion stating the commission’s attempts to redefine what an “exchange” legally means to apply it to crypto firms was an attempt “to solve problems that do not exist.” Further, she said the SEC’s antagonistic stance against crypto would drive the industry overseas or towards harder-to-police areas of decentralized finance (DeFi).
Coinbase can prefer to continue operating in the U.S. while building up operations elsewhere. But the SEC needs to get the message soon that at some point the U.S. market may just not be worth it. This is especially as other jurisdictions take a more collaborative approach towards regulating crypto.
Though there have been recent signs of crypto winter thawing, developers have continued to make the most of the current builder’s market. NEAR, in particular, has seen significant growth in new projects and increased adoption over the past year.
NEAR’s expansion is due in part to some significant upgrades and announcements from its core team. Most recently, NEAR announced its transition to a Blockchain Operating System (BOS), an industry first that further establishes NEAR as the direct entry point into Web3. With the BOS, NEAR is no longer just a Layer 1 — it’s the OS for an open web, free from the centralized platforms of Web2.
*This is sponsored content by NEAR
Off-Chain Signals
Lens Social Media Protocol Unveils Layer 3 Scaling Solution (The Defiant)
Coinbase execs slapped with insider trading lawsuit as banks get spooked (Protos)
Ethereum withdrawals flatline as memecoins drive ETH burn rates higher (The Block)
Coinbase, crypto industry hope new Supreme Court doctrine is silver bullet (Reuters – opinion, please read this is super smart)
The World’s Richest Man, Bernard Arnault, Owns NFTs (Blockworks)
Poloniex Settles With OFAC for $7.6M Over Sanctions Violations (Blockworks)
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Banks Collapse
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