Coinbase makes pitch for crypto regulatory agency

The cryptocurrency exchange Coinbase wants the federal government to establish a regulatory agency to police crypto companies.

The company released a report Thursday that lays out what it thinks crypto regulation should look like in the U.S. It makes four recommendations, the main one being the creation of a body that oversees businesses tied to digital assets.

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After a monthslong dispute with the Securities and Exchange Commission, Coinbase is urging the creation of a new agency to regulate cryptocurrency companies.
Bloomberg News

This report comes as Coinbase, which has 68 million users of its digital wallet and crypto services in 100 countries, has been embroiled in a dispute in recent months with the Securities and Exchange Commission. In early September, the SEC threatened to sue Coinbase over a lending product it was planning to launch called Lend that would have provided users with 4% interest on cryptocurrency they loaned to Coinbase. The SEC had earlier told Coinbase executives it considered Lend a security.

Similar products have been proposed by others and in some cases have raised concerns. Several states have objected to BlockFi’s loan product, the BlockFi Interest Account. Circle Internet Financial, which offers a crypto lending product called Yield, treats it like a security under Regulation D and has a crypto lending license from the Bermuda Monetary Authority. The company’s CEO, Jeremy Allaire, has said that when national regulations for crypto lending come out, Circle will comply with them.

In late September, Coinbase dropped its plans for Lend.

The regulatory framework Coinbase suggested Thursday has four “pillars.” The first states that digital assets should be regulated under a separate policy framework.

Cryptocurrency “does not fit neatly within the existing financial system, which assumes the ongoing existence of a series of financial intermediaries, transfer agents, clearing houses, brokers, and so on,” Faryar Shirzad, Coinbase’s chief policy officer, said in a press conference Thursday. The new framework should “ensure the innovation and adoption by freeing digital assets from the difficulty of transitioning from our legacy market structure and the regulatory system that was built around it,” he said.

In its second pillar, Coinbase says there should be one federal regulator designated for digital asset markets. “A digitally native and dynamic regulator will help ensure that the transformation of the financial system serves as many members of the American public as possible,” Shirzad said.

The core responsibility of this regulator would be to create a registration system for digital asset marketplaces, he said. Such entities would be allowed to engage in trading, custody, clearing, settlement, payment, staking, borrowing, lending and more.

Bitcoin and Ether would not be subject to this new regulator, Shirzad said.

In its third pillar, Coinbase said cryptocurrency investors should be protected against fraud and market manipulation and given proper disclosures.

The fourth pillar is that the new digital asset regulator should promote interoperability across the crypto ecosystem.

“We believe that this comprehensive four-pillar framework can help to resolve the most important ambiguities for crypto and digital assets in today's regulatory system,” Shirzad said.

Some industry observers gave Coinbase's proposal a favorable review.

“I commend Coinbase for developing their thoughtful framework for regulating digital assets," said Michael Piwowar, executive director of the Milken Institute Center for Financial Markets and a former commissioner and acting chairman at the SEC. "Regulatory certainty in the United States is urgently needed to maintain our leadership in responsible financial innovation.”

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