North America’s largest cryptocurrency exchange Coinbase is in talks with the Securities and Exchange Commission (SEC) to register as a licensed brokerage. Company officials have approached SEC officials regarding the matter, according to a report in the Wall Street Journal citing anonymous sources.
A positive response from the SEC will make Coinbase the first SEC-registered cryptocurrency exchange within the United States. SEC oversight has largely remained absent from cryptocurrency exchanges. For example, Gemini, the Winklevoss twins’ exchange, is regulated by the New York State Department of Financial Services. On its website, San Francisco-based Kraken states that it is “trusted” by the Tokyo government’s court-appointed trustee and Germany’s BaFin regulated Fidor Bank.
Why Does Coinbase Want Regulation?
As cryptocurrency markets gained mainstream traction and initial coin offerings (ICOs) last year, the SEC stepped up its efforts to bring cryptocurrency markets under regulatory scrutiny last year. In his statements, SEC Chair Jay Clayton repeatedly warned about the legal status of ICO tokens. According to him, most ICO tokens were securities and, therefore, were subject to SEC regulations. Early last month, the agency released a statement that sought to provide definitions for exchanges that are required to register with the agency. (See also: Is Ethereum A Security? SEC Chair Sows Confusion).
Coinbase’s move follows its announcement last month of support for ERC20 tokens, the most commonly-used ethereum token used for ICOs. The exchange is also planning to increase the number of tokens listed on its platform. As are other exchanges. Gemini and Kraken are also making the addition of new coins a priority for 2018. A Bloomberg report states bitcoin offshoots bitcoin cash and litecoin will be the most likely additions. (See also: Coinbase Has More Users Than Schwab).
The addition of new coins is a profitable business for exchanges as it translates to increases in trading volume. According to Bloomberg, exchanges earn as much as $3 million per day in trading fees. Dave Weisberger, chief executive of CoinRoutes, said that “…providing such (crypto) markets with the opportunity (and obligation) to comply with principles-based regulatory approach would likely increase investor confidence and institutional participation in the market."
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.01 bitcoin.