Why Coinbase Bought a Broker-Dealer

Coinbase, the most popular U.S. platform to buy and sell digital currency, announced Wednesday that it had acquired California-based FINRA-registered broker dealer Keystone Capital Corp.

In purchasing the Securities and Exchange Commission-regulated broker dealer, the $1.6 billion cryptocurrency exchange has obtained licenses that let it register with the government to offer its customers more financial services. Keystone can reportedly operate as a registered investment advisor, as well as run an alternative trading system, or ATS, according to The Wall Street Journal. 

Access to Skyrocketing ICOs, Traditional Products

The Silicon Valley-based firm, which eclipsed Charles Schwab in terms of total user accounts late last year, currently offers four types of digital currency, including bitcoin and ethereum. The new deal positions Coinbase to sell any tokens registered as a security in the future, as well as expand its offerings into traditional financial products. This means that the platform could offer its 20 million-plus customers more access to the red-hot coin offerings market, as well as sell other products like U.S. equities. (See also: Coinbase Has More Users Than Schwab.)

Startups raising capital through initial coin offerings (ICOs), a cross between crowd-funding and initial public offerings (IPOs), have raised more than $13 billion since the start of 2017, and have continued to rake in funds despite volatility in the cryptocurrency markets. Exchanges like Coinbase have been hesitant to list these tokens, since the SEC has argued that they fit the definition of a security and therefore are subject to regulatory oversight regarding proper licensing. The deal is also part of Coinbase's broader strategy to expand its customer base, made up of mostly retail investors. 

"Ultimately, we can envision a world where we may even work with regulators to tokenize existing types of securities, bringing to this space the benefits of cryptocurrency-based markets — like 24/7 trading, real-time settlement, and chain-of-title. We believe this will democratize access to capital markets for companies and investors alike, lowering costs for all participants and bringing additional transparency and inclusion to the ecosystem," wrote Coinbase in a blog post. 

Coinbase will still require regulatory approval to operate under the Keystone licenses. (See also: Coinbase Tries to Reel in Institutional Investors.)

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 cryptocurrency.

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