State of Crypto: Coinbase's Rise

How policy and regulation impact the crypto world – and the other way around

By Nikhilesh De

Managing Editor, Global Policy & Regulation

April 13, 2021

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Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De. You’re probably here because you signed up, but in case you're not a fan, you can unsubscribe here.

Crypto exchange Coinbase is going public tomorrow. This may be the the clearest signal yet that the digital asset industry is here to stay.

—Nik

Coinbase goes public (tomorrow)

Coinbase CEO Brian Armstrong. (CoinDesk archives, modified via PhotoMosh)

The narrative

Coinbase's listing on Nasdaq sends a powerful signal of legitimacy to the U.S. cryptocurrency community, as well as to the crypto-curious in the traditional financial world. CoinDesk is providing round-the-clock coverage on this landmark listing.

Why it matters

In any other industry, this might not be a story. But because this is the crypto sector, it is a significant one, and for good reason. Coinbase going public is possibly a model for other crypto companies looking to navigate U.S. federal securities laws, and Coinbase’s status as a Securities and Exchange Commission-regulated company might make it more attractive to investors on the fence about the digital asset space.

Breaking it down

A cryptocurrency company going public in the U.S. isn’t a first for the industry. Diginex, a blockchain services firm that runs the EQUOS.io exchange, went public last year and a number of other companies have also announced their intent to do the same. But Coinbase is the largest and most well-known exchange to go public in the U.S.

“I think this is a story because it’s crypto-related,” said Nelson Rosario, a partner at Smolinski Rosario Law. “It will add some measure of legitimacy to the space, just in general because Coinbase will now be a publicly traded company, apparently at a very high valuation and that will make people think a bit more seriously about companies in general in the space.”

Coinbase also benefits from its role in the crypto ecosystem, Rosario said: the exchange is one of the best-known entry points for individuals interested in cryptocurrencies, not to mention one of the older ones at nine years old.

Investing in $COIN may serve as a proxy investment for cryptocurrencies themselves.In other words, Coinbase stock could serve as an alternative for those investors who are not ready or able to directly invest in cryptocurrencies.

Bitcoin, though it is now over a decade old and has exceeded $1 trillion in market capitalization, is still a pretty young, at times very volatile investment. It makes sense that investors wary of these traits might look to a (theoretically) more stable alternative.

Existing companies with exposure to bitcoin or cryptocurrencies – cough, Microstrategy – could also be sort of seen as proxy investments into those cryptocurrencies, though Coinbase has the added benefit of having a business that is explicitly crypto-focused.

“Obviously some traditional investors might still be loath to actually purchase cryptocurrency but they might see the value in owning a share of the pie,” said J. Ashley Ebersole, a former SEC Enforcement attorney and current partner at Bryan Cave Leighton Paisner.

Rosario said that while investors could already invest in the digital asset world, Coinbase’s sheer size and role in the sector might be the tipping point for some investors who were previously cautious about entering the space.

Kristin Boggiano, co-founder and president of the U.S.-based CrossTower, agreed, telling CoinDesk that anyone who owns Coinbase stock “will be able to share in the development and growth of the digital asset industry.”

Coinbase can also provide a roadmap for the rest of the digital asset industry. Eschewing the traditional initial public offering (IPO) model, or the new and fairly hyped special purpose acquisition company (SPAC) model, Coinbase is just listing its shares on Nasdaq directly. Other companies can follow this model if they are interested in going public, Rosario said.

This is a crypto-specific example though, Ebersole noted, saying, “It’s sort of blazing a trail but I don’t know that it’s changing the regulatory picture around what this space is actually doing and doing in a compliant way.”

Boggiano said that Coinbase is blazing that trail.In her view, the exchange has established “an operational framework that has passed SEC standards,” which other exchanges like hers can look to moving forward.

Coinbase going public should also add a new level of transparency that the industry largely lacks, Ebersole said.

“If you’re an investor or a watcher in the crypto industry, you’ve had white papers and that kind of thing to date,” he said. “Depending on the issuer of a crypto asset, you’ve had various degrees of disclosure and information out there but having an entity that’s SEC-regulated and a reporting company is a whole different ball game.”

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Dante Disparte Departs Diem

Circle Chief Strategy Officer/Head of Global Policy Dante Disparte (CoinDesk archives)

Dante Disparte, who just served two years as the Diem Association (formerly Libra)’s executive vice chair, is joining crypto payments startup Circle as chief strategy officer and head of global policy.

“I’ve spent a good portion of the last two years really in a front row seat at what was the global policy conversation,” he told me.

In his view, USDC is a trusted payment instrument, “and Circle is doing it at the operational level.”

In his blog post introducing Disparte, Circle CEO Jeremy Allaire wrote that the new executive would oversee the company’s global expansion operations.

In practice, this involves engaging with policymakers and adding to Circle’s existing licenses, Allaire said.

“This is about constructive engagement and actually constructing policies and we’re in the proverbial second inning, so there’s just a ton of work to do,” he said.

Disparte said this effort would have to go deeper than publishing white papers or holding forums, but rather “demystifying” the actual use cases blockchain-based tools can support.

These use cases also need to align with the public interest, he said, meaning cryptocurrencies (like Circle’s USDC) would have to support the underlying security found in the banking system, but provide the benefits of being an internet-enabled network.

“What you’ve done is decoupled being banked with costly fixed infrastructure like brick-and-mortar banks,” he said. “What we have to do is decouple being banked with costly KYC requirements … [this] doesn’t mean you necessarily introduce more risk.”

When ETF

We are at the first public comment deadline for the VanEck/Cboe Bitcoin exchange-traded fund (ETF) application and I gotta tell ya, not a lot of people weighed in. I’m writing this on a Friday (the comment deadline) and there are exactly five comments right now. That being said, people can still file comments, and the SEC has almost a month to make an initial decision on whether to approve, reject or extend the process.

The SEC also announced it was reviewing WisdomTree’s bitcoin ETF application (also filed with Cboe BZX), while Kryptoin filed for an ETF, bringing the total number of active applications to eight nine (a ninth was filed between me writing this and this being published).

Important details:

Biden's Rule

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

We might see Gary Gensler and Rohit Chopra confirmed to their positions as Chairman of the Securities and Exchange Commission and Director of the Consumer Financial Protection Bureau, respectively, sometime this week. Additionally, Michael Mosier is now the Acting Director of the Financial Crimes Enforcement Network, after former Director Kenneth Blanco stepped down.

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Elsewhere

The Accidental Crypto Lobbyist: My colleague Danny Nelson was trying to report on potential crypto legislation in West Virginia when he stumbled across some language he didn’t understand, but which would appear to have essentially banned crypto. So like any good journalist, he mass-emailed every co-sponsor on the bill and asked. In response, two of the co-sponsors amended the bill to exclude that language.

Mysterious Filings Suggest Impostor Is Using Grayscale’s Name to Pump Obscure Coins: By me: Someone registered a pair of Grayscale Trusts that resemble the legitimate ones, but aren’t. The trusts, registered as LLCs, were for Nahmii and Theta. The teams behind both cryptocurrencies, as well as Grayscale itself, say they had nothing to do with these trusts. The question, then, is who did register these entities, and is this just a somewhat-more-sophisticated pumping scheme?

Bank of Russia Plans Prototype for Its Digital Ruble Design in December: The Russian central bank has published a new concept paper for the proposed digital ruble, with a prototype tentatively expected by this December, my colleague Anna Baydakova reports. Bank of Russia First Deputy Governor Olga Skorobogatova said during a press conference that this prototype would enable smart contract support and the bank is looking to support offline payments.

South Korean Prosecutors Sell (and Profit Off) Bitcoin Taken From Criminals: South Korean prosecutors made some 12 billion won (just under $11 million) after selling bitcoin seized in 2017 from the operator of an illegal pornography site, CoinDesk Korea’s Felix Im reported last week. At the time the bitcoin was seized, it was worth about 270 million won ($240,000).

CoinDesk Quarterly Review 2021 Q1

Investor Momentum to NFT Boom: CoinDesk Research's Quarterly Review

Introducing CoinDesk Research's quarterly review, covering the main developments over the first three months of 2021 in Bitcoin, Ethereum, DeFi, stablecoins and – of course – NFTs.

The report presents over 100 insights on how retail investors are picking up market momentum, how Ethereum activity is not being driven by NFTs as much as one might think, how stablecoins have responded to increased activity, how DeFi is for now the realm of decentralized exchanges and more.

Download the CoinDesk Quarterly Review, First Quarter 2021.

Outside CoinDesk

(Missoulian) Officials in Missoula County, Montana, have enacted local crypto mining ordinances which, among other things, address climate change issues by directing where mining facilities can be located and what sort of energy sources it can use. The Missoulian quotes County Commissioner Dave Strohmaier in explaining the new ordinances: "We've made a commitment to pursue 100% clean electricity in our Missoula urban area by the year 2030 … And the last thing we wanted to do was to see any industries in our county be headed in the opposite trajectory and set those goals backward."

(Business Post) I missed this earlier, but courtesy of my former colleague Joon, here’s my new favorite headline: Bono whiskey firm brands casks with blockchain tokens.

Today's Tweet

If you’ve got thoughts or questions on what I should discuss next week, or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde.

You can also join the group conversation on Telegram.

See y’all next week!

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