Coinbase, one of the most popular crypto exchange and wallet services operating in the regulated financial sector, shared its first-quarter earnings on Tuesday ahead of its Nasdaq direct listing on April 14.
Top line results showed revenues sky rocketing to $1.8bn in the first quarter of 2021 versus $191m in the same period last year, with net income climbing to c$730m.
Other stand out numbers included the service reaching 56m verified users, trading volume of $335bn, and its $223bn worth of assets, setting the crypto service up for a valuation of up to $70bn.
Twitter folk quickly forged a consensus that such figures prove not only that Delaware-incorporated company is a profit-minting machine but that crypto itself can no longer be ignored by traditional finance.
As John Street Capital tweeted in an illuminating Twitter thread:
But it’s worth reminding investors that the stand out concern remains that the current framework under which Coinbase is regulated (a money transmission one) is not at all suited to regulating its broader activities, among them its exchange activity and principal-trading operations.
This is important because if Coinbase’s regulatory status were to change (and regulatory ambiguity is clocked in the company’s S1 risk factors) the company could be forced to drop many of these hugely profitable activities or be forced to operate at a much higher capital cost.
In an upcoming qualitative review of the regulatory status of 16 crypto exchanges Martin Walker, director at the centre for evidence based management and a fintech consultant, and co-author Winnie Mosioma, the founder of the Blockchain Legal Consultancy, argue that these sorts of inconsistencies will have to be closed if these platforms are to compete in the formal financial sector:
Conventional platforms for trading securities, foreign exchange, derivatives, commodities and other more conventional financial assets are strictly regulated, whether they are officially classified as exchanges or Alternative Trading Systems (ATS). An ATS, while not strictly a stock exchange, has to follow the regulations that apply to either exchanges or broker-dealers depending on a number criteria (varying between jurisdictions), such as the volume of trades and market share. Whatever the classification, conventional trading platforms have to follow strict rules designed to protect investors and avoid destabilisation of the financial system. Particularly rules that require a high level of transparency guaranteeing operational resilience.
The context, they note, is cryptocurrency’s inherent dependency on multilateral exchanges for facilitating price discovery. This contrasts to bitcoin predecessors such as Liberty Reserve or E-gold, which only needed to be serviced by third parties prepared to exchange digital currencies for the corresponding linked assets for a fee.
Since crypto regulations have largely failed to address this…