Photo by: Ivan Radic/ Source: Flickr (CC BY 2.0)
Coinbase, a leading United States-based cryptocurrency exchange, is considering diversifying its risk by establishing a trading platform in another country, according to Bloomberg.
The Securities and Exchange Commission’s Crypto Assets and Cyber Unit in the Division of Enforcement plans to grow its division to about 50 dedicated positions from 30 white-collar regulatory officials. The new headcount will be tasked with investigating, auditing, examining and potentially prosecuting securities law violations related to crypto-related products and trading activities.
In the wake of the spectacular implosion of crypto exchange FTX, led by its now-disgraced founder Sam Bankman-Fried, followed by the shuttering of crypto-friendly Silvergate Bank and Signature Bank and somewhat adjacent Silicon Valley Bank, it looks like the SEC is planning to vigorously scrutinize this sector more closely.
If digital asset companies leave because of what they feel are oppressive regulations, the U.S. will lose a fast-growing industry.
Leaving The U.S.
Nearly 2,000 people are working full-time in the cryptocurrency industry, according to a global crypto benchmarking study. The number pales in comparison to the too-big-to-fail banking behemoths in the U.S., such as JPMorgan, Wells Fargo and Bank of America. However, the crypto sector is still very young compared to the traditional banks.
These companies can grow and scale quickly, especially now, as people are worried about keeping their money in banks. In a rocky economic environment, it’s important to create new jobs via innovative, revolutionary companies that could one day employ ten to hundreds of thousands of workers in and around this burgeoning industry.
If Coinbase does decide to open a beachhead abroad, it would open up additional markets and gain new customers. The potential new trading platform based outside of the U.S. could both diversify its business model and cut down on regulatory risks back home in the U.S.
Brad Garlinghouse, CEO of Ripple, who is embroiled in a matter with the SEC, says that the agency has a penchant for regulation through enforcement measures that will weaken the digital asset sector in America. According to Garlinghouse, their strong-armed methods will chase digital asset platforms and exchanges out of the U.S.
Dave Weisberger, CEO and cofounder of algorithmic trading platform CoinRoutes, said in a CoinDesk interview about the Coinbase matter that “there is a a very real risk that more crypto companies will move offshore, particularly with regulatory frameworks being proposed in the U.K. and the [European Union].” Additionally, it’s been reported that Sygnum in Switzerland and Bank Frick in Lichtenstein saw increases in requests from U.S. residents to open offshore accounts, and Europe, Puerto Rico, Bermuda and the Bahamas may be go-to destinations outside of the U.S.
Binance, a large international exchange run by Changpeng Zhao, is considering cutting back on some potential U.S. investments and business relationships with banks and other service providers because of heightened scrutiny.
The SEC Is Getting Aggressive
The New York Times reported on the aggressive actions by the SEC against crypto-related entities. The regulatory agency announced a settlement with Kraken, a large crypto exchange. In a press release, the SEC alleged that Kraken failed to appropriately “register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21%.”
Paxos, a company that issues stablecoins pegged to the U.S. dollar, received a Wells notice from the SEC on February 3, stating that the SEC is considering recommending an action alleging that BUSD is deemed a security and should have registered the offering under the federal securities laws.
The SEC charged Singapore-based Terraform Labs and founder Do Hyeong Kwon with allegedly masterminding a multibillion-dollar crypto securities fraud. Paul Pierce, an NBA Hall of Fame-er, agreed to pay $1.4 million to settle charges that he shilled for a cryptocurrency project without disclosing that he was paid for his marketing efforts, Axios reported.
Concerned crypto supporters claimed that the government is executing “Operation Choke Point 2.0,” referring to a prior law enforcement battle to curb banks from working with specific businesses—when the Federal Reserve Bank denied an application from crypto institution Custodia Bank to participate in the Fed’s payment system.
New Jobs Will Be Created To Effectively Deal With Crypto Regulations
The SEC’s assertive stance will likely spur considerable growth for both regulators working at government agencies, overseeing banks, brokers, hedge funds, private equity, mutual funds and various other financial firms.
As the founder and CEO of an executive search firm that places compliance people on Wall Street, the current wave of regulatory actions will create a boom for regulatory personnel within the securities industry to ensure that their companies are not doing anything that violates rules and regulations, and to interface with the SEC, the Financial Industry Regulatory Authority, the Commodity Futures Trading Commission, the Federal Reserve Bank and other regulatory entities.
I’ve seen this pattern emerging many times over the years. After scandals or regulatory enforcement actions, companies quickly hire people to ensure that their organizations do everything they can to keep clean and avoid any infractions that could result in costly litigation and a damaging public relations fiasco.
Forbes reached out to Coinbase for comment, but didn’t hear back.
Source: Forbes
