Coinbase, the largest U.S. crypto exchange, recently opened a new derivatives exchange in Bermuda, signaling its discontent with the increasingly stringent U.S. crypto regulations. Although it has had a history of working closely with U.S. regulators, Coinbase has found itself at odds with the SEC under Gary Gensler’s leadership.
The SEC has prevented Coinbase from launching several new services, such as its crypto lending program Earn and a staking-as-a-service platform for U.S. users. In response, Coinbase has opposed the SEC’s insistence on registering as an official securities exchange, arguing that the crypto tokens it lists do not qualify as securities.
The newly-established Coinbase International Exchange offers bitcoin and ether derivatives contracts with a leverage cap of 5%, targeted at professional investors and traders outside the U.S. This marks Coinbase’s latest attempt to extend its global reach; it is engaging with financial regulators in Abu Dhabi and has praised the U.K.’s progress on sensible crypto regulation.
Other exchanges have chosen to exit the U.S. market, such as Bittrex, which closed its stateside operations shortly before being sued by the SEC. Shapeshift, meanwhile, transitioned into a decentralized autonomous organization (DAO) to distance itself from the U.S. regulatory environment.
Nevertheless, many see Coinbase’s international expansion as an empty threat to U.S. regulators. The company’s main revenue stream comes from charging high trading fees to U.S. crypto users, who currently represent around 40% of its customer base. In a recent SEC filing, Coinbase expressed its commitment to the U.S. market, adding that it believes the moment is right for launching an international exchange.
Coinbase has stated its willingness to fight the SEC in court if necessary, but it could also be waiting out Gensler’s tenure in the hopes of a more lenient successor. SEC Commissioner Hester Pierce has already expressed disagreement with the commission’s attempts to redefine the term “exchange” for crypto firms and warned that a hostile stance could drive the industry overseas or towards decentralized finance (DeFi).
As international jurisdictions like Hong Kong work towards adopting more collaborative approaches to regulating crypto, the SEC must realize that the U.S. market may not be worth the regulatory hassle for companies like Coinbase. Without a clear and fair legal framework, innovative crypto enterprises could be driven away from the U.S., hindering the nation’s competitive edge in the rapidly evolving digital currency space.