Members of the crypto community have clashed with practically every major federal regulator, and even some state players (remember when the New York State Department of Financial Services rolled out its surprisingly restrictive Bitlicense?), while also taking on both chambers of Congress (during the battle over crypto taxes earlier this year). Each of these episodes has been accompanied by anxiety among members of the community and its lobbyists as they battled in the name of protecting the nascent industry from heavy-handed regulators who would stifle innovation.
Given it's market position, Coinbase was a major player in all of these battles.
And after so many negative encounters with regulators who are, first and foremost, in the pocket of the legacy financials services industry, which crypto implicitly disrupts, Coinbase has released a paper calling for the creation of a new 'crypto regulator' that would be solely responsible for governing the industry.
Laws drafted in the 1930s to facilitate effective oversight of our financial system could not contemplate this technological revolution.
Unveiled Thursday, Coinbase’s Digital Asset Policy Proposal asks Congress to pass legislation to regulate Marketplaces for Digital Assets (or MDAs, Coinbase's preferred term for crypto exchanges that offer trading and custody services along with borrowing and lending). Coinbase also raised the prospect of establishing a self-regulating organization for the industry, sort of like how Finra regulates broker-dealers in the traditional financial system. CoinDesk, the news site dedicated to crypto assets, first reported on Coinbase's plans last month.
In the proposal, four "regulatory pillars" guide the process: regulating digital assets under an industry-specific framework, creating the new regulator, establishing fraud protections and disclosure requirements that become standard for the crypto business while promoting interoperability.
Most pointedly, the proposal is a direct rebuke to SEC chief Gary Gensler, who told members of the House Financial Services Committee that the SEC had 'all the authorities necessary' to regulate crypto, adding "we don't need another regulator."
Ultimately, whether Coinbase succeeds or not will come down to Congress, which it is asking to pass a law to create the new crypto regulator and consolidate all the powers of industry regulation within one authority.
“This is the kind of issue that requires legislative action,” Faryar Shirzad, Coinbase’s chief policy officer, said during a media preview call Thursday.
“Our focus is very much on a legislative effort, which, from our sense of things, is inevitable.”
Shirzad acknowledged that Coinbase faces headwinds in getting the federal government to adopt its proposal, but said it is imperative that political leaders consider designing a crypto regulatory regime from new cloth rather than trying to fit the industry into legal regimes designed in a pre-computer era.
As Decrypt notes, Coinbase's call for a new "digital first" regulator is consistent with the worldview of the company's CEO Brian Armstrong, who has long been frustrated with the ways of Washington. As recounted in Kings of Crypto, a book about the early days of Coinbase, Armstrong concluded a 2018 trip to the Capitol by proposing to the company's lawyer that the laws governing securities and the SEC should be modernized or replaced.
With the regulation-embracing Democrats in power, Coinbase's libertarian-oriented CEO Brian Armstrong would probably have a better shot at making his vision a reality if the GOP were to take back Congress in the midterms (and then the presidency in 2024).
Maybe in the meantime, Coinbase can focus on improving its customer service.
