Cloud Hosting

Coinbase(NASDAQ: COIN) is fed up with Americas refusal to let thedigital asset exchange break the law with impunity, so its heading overseas to join its criminal rivals.

On Wednesday, Coinbaseprovided an update on its previously stated plan to go broad and deep, aka establish bases of operation in jurisdictions that will let it do what American authorities wont let it do at home.

Coinbase paints its international expansion push as furthering its mission of increasing economic freedom for every individual and business. However, its primary aim appears to be engaging in activities that U.S. regulators like the Securities and Exchange Commission (SEC) insist are illegal, like offeringunregistered securities to the public.

For instance, Coinbase said Thursday that it had received a Class F license under the Digital Asset Business Act from theBermuda Monetary Authority.Fortune subsequently reported that Coinbase will launch a Bermuda-based derivatives exchange as soon as next week. The new platform will reportedly include perpetual swaps among its offerings.

Swaps and other exotic derivative products have long been fixtures on sketchy exchanges such asBinanceandFTX (pre-bankruptcy). Both exchangesoffered customers leveraged bets over and above 100xuntil regulators started asking questions. Binance founderChangpeng CZ Zhaosaid his exchange reduced its leverage primarily because hedidnt want to make this a thingy.

Bermudas past and present digital asset licensees include Bittrex (which recentlygot its own SEC charges), bankrupt digital lenderBlockFi, and CoinbasesUSDCpartner,Circle. Years ago, Binance signed amemorandum of understanding with Bermudas government to invest $15 million and create 40 local jobs, but like many Binance initiatives (particularly those that involve acquiring licenses), nothing ever came of it.

We USDC what you did there

Coinbase has been desperately seeking new ways to generate revenue as the lingering effects of 2022s crypto winter continue to deter retail tradersfrom whom Coinbase earns significantly greater commissions than institutional tradersfrom dipping back into the fetid crypto waters. Coinbase currentlyrelies heavily on interest incomegenerated from custodying customers USDCstablecoins (issued by Circle via the Centre consortium, in which Coinbase is a partner).

Worse, that USDC custody revenuewhich is based on investing the cash reserves backing issued USDC in U.S. Treasury bills at much higher rates than the 1.5% Coinbase is paying its customersis falling. It started falling a little more slowly on Thursday after theMakerDAO community voted to store an additional $500 million worth of its USDC with Coinbase, albeit at a higher 2.6% rate.

However,this new arrangement is valid for a maximum term of 364 days. MakerDAO clarified this was an interim solution that will be terminated once the self-custodial solution is ready. Coinbase also cant lend, pledge, hypothecate or rehypothecate the custodied assets and has to permit withdrawals of the whole lot within 24 hours of such a request.

Following last monthscollapse of crypto-friendly banksandstablecoin wars with Binance, Circle was forced to sell plenty of T-bills to fulfill around $12 billion worth of USDC redemptions. Some of these USDC redemptions undoubtedly came from customers of Coinbases rewards program. (Not a security, dammit!) Since that selloff began in mid-March, the impact wont appear that severe when Coinbase releases its Q1 results on May 4. But the Q2 numbers? Well, as the movie says, there will be blood.

Soyou can understand Coinbases eagerness to jump into the sketchy derivatives pool with both feet. But Coinbase will find it difficult to steal market share from its established international rivals unless CEOBrian Armstrong is willing to display the same blatant disregard for the law that CZ does.

Love it or leave it

Earlier this week, Armstrong went onCNBCto discuss his companys ongoing issues with the SEC, whichissued a Wells noticelast month indicating an imminent enforcement action against Coinbase for, among other things, offering tokens the SEC considers to beunregistered securities.

Addressing the unfortunate SEC warning, Armstrong said that while we never seek litigation, his company is prepared to go to court to get the clarity we need and create the case law. Armstrong slams the SEC for having completely abdicated responsibility in establishing a clear rulebook for firms like his.

But as SEC chairman Gary Gensler has repeatedly observedand did so again this week in hisappearance before the House of Representatives Financial Services Committeenothing about the crypto markets is incompatible with the securities laws [already on the books] Not liking the message isnt the same thing as not receiving it.

Armstrong was in the U.K. this week for Londons Fintech Week confab, pushing local authorities tocompel banks to handle fiat transactionson behalf of exchanges like Coinbase. Armstrong also let it slip that, based on his view that the U.S. is now crypto-hostile, his company was mulling optionsincluding relocating or whatever is necessary.

Armstrong undercut his threat somewhat by noting that a relocation would depend on if a number of years go by where we dont see regulatory clarity emerge in the U.S. But Armstrong told CNBC that we have a budget and we have to decide where to allocate it. And so that means what products we want to build, but it also means what countries we want to invest it in any given year.

Armstrongs tough talk ignores his companys utter reliance on the U.S. marketits 2022 annual report showed 84% of revenue came from U.S. customers. And if he thinks acting recklessly abroad while professing his love of regulations at home will win him any more fans with U.S. authorities, hes in for one rude awakening.

If Coinbases international offshoots offer products that American regulators frown upon, it will only increase their scrutiny of Coinbases operations. And if Armstrong thinks hes got problems now, wait until some SEC or Department of Justice agent manages to sign up and trade sketchy derivatives on Coinbase Bermuda from a U.S. IP address.

Compliance theater

Coinbase hasnt completely given up on Murica, asBarronsreported Thursday that the exchange is joining forces with crypto hedge funders a16z to throw a fundraiser for blockchain enthusiastSen. Cynthia Lummis (R-WY) on April 28. Suggested contributions range from $1,000-$3,000 per person.

Armstrong alsospent Thursday in Washington, DC, meeting with members of congress. (Question: why do photos always make it look like Armstrong iscarrying two invisible kettlebells?)

The innovators will flee and America will flounder mantra recently adopted by Armstrong and his allies was openly mocked by Rep. Brad Sherman (D-CA) atWednesdays House hearing on stablecoins. Noting cryptos predominant use case of facilitating crime, Sherman declared: Perus ahead of us in cocaine cultivation. Chinas ahead of us in organ harvesting. Its time for America to catch up!

Coinbase, Binance, and other exchanges love to publicly profess their fondness for regulation, but what theyre really after is a hands-off approach that allows them to ignore rules and maximize profit. All too often, when obliged to abide by the rules of the road, Coinbase has opted instead totake its ball and go home.

Lawyer up

Coinbases Wells Notice news didnt help the companys stock price, which closed Thursday down 6% to $60.50. Thats an improvement from where it closed out 2022, but still less than one-fifth of its peak shortly after Coinbases 2021 direct listing on the Nasdaq. Meanwhile, Armstrong and other senior managers continue todump millions worth of their personal holdings, with Armstrong alone having sold nearly $22 million since the year began.

But if youre among the poor sods who have lost over $50,000 investing in Coinbase stock or options based on Armstrong & Cos antics, the securities law firm of Faruqi & Faruqi LLP would like to hear from youregarding a potential class action against the exchange.

Coinbase had faced the threat ofsimilar suitsbefore, includinganother from Faruqi after Coinbase abruptly announced plans to raise $1.25 billion in additional capital just one month following its Nasdaq debut. It remains to be seen how many investors with losses over $50,000 will respond to Faruqis current appeal.

Coinbase tends to downplay legal issues it would prefer investors dont focus on, such as thematerial risks section of its prospectus, which included the identification ofSatoshi Nakamoto or the transfer of Satoshis Bitcoins. Small wonder, then, that Coinbase is a member of theCrypto Open Patent Alliance(COPA), a group set up toundermine Dr. Craig Wrights efforts to be acknowledged as Satoshi.

Coinbase is also keen to downplayWrights suit against it and rival exchange Krakenfor passing off the corrupted BTC token asthe original Bitcoin. Guess once youve started down the road of passing off your operations as legally compliant and regulatory-friendly, it must be hard to stop.

FollowCoinGeeks Crypto Crime Cartelseries, which delves into the stream of groupsfromBitMEXtoBinance,Bitcoin.com,Blockstream,ShapeShift,Coinbase,Ripple,Ethereum,FTXandTetherwho have co-opted the digital asset revolution and turned the industry into a minefield for nave (and even experienced) players in the market.

New to Bitcoin? Check out CoinGeeksBitcoin for Beginnerssection, the ultimate resource guide to learn more about Bitcoinas originally envisioned by Satoshi Nakamotoand blockchain.

Read the original:

Coinbase's overseas expansion seeks more swaps, fewer cops - CoinGeek