Cryptocurrencies may have just taken their next step in an inevitable evolution, as Coinbase awaits approval to become the first-ever SEC-regulated crypto exchange, and it will change this space forever.
For years, the Securities and Exchange Commission (SEC) has remained highly critical of everything crypto, labeling products by the industry as fraudulent and manipulative.
It famously rejected a proposed bitcoin ETF in 2017 and warned crypto punters to stop trying to use legal chicanery to force its hand.
Lately, it has also doubled down on efforts to regulate the space, declaring that the same rules that apply to normal securities such as stocks and bonds will now apply to most cryptocurrencies.
But the days of SEC stonewalling crypto could soon become history. The view from pretty anywhere you stand is that the commission is beginning to slowly warm up to the industry, if recent developments are any indication.
Coinbase, the cryptocurrency industry giant, could soon begin operating under the oversight of SEC and the Financial Industry Regulatory Authority (FINRA) and thus become the first SEC-regulated crypto exchange.
In March, SEC Commissioner Robert Jackson told CNBC that the financial regulator was not looking to ban ICOs but rather was exploring ways to make them work within existing legal frameworks.
And crypto investors can now look forward to buying and selling their coins through a fully-regulated exchange. Cryptocurrency has announced that it's on track to register with SEC as a broker-dealer, a move that will allow it to list cryptos the commission deems as securities.
The exchange has revealed that it has already acquired a registered investment advisor (RIA) license, broker-dealer license and an alternative trading system (ATS) license.
Approval would be a major change for the crypto space.
Fair Chance of Winning Approval
Coinbase is a San Francisco, California-based cryptocurrency exchange. It's currently the fourth-largest crypto exchange with $157.5 million in daily trade volumes (about five percent of market total).
There's a fair chance that Coinbase will win SEC and FINRA regulatory approval.
First off, in an industry replete with exchanges, Coinbase stands out as one of the most reputable and transparent. In fact, the exchange has almost become the de facto platform for traders and investors to get their feet wet in the industry.
Additionally, Coinbase offers better flexibility compared to other major exchanges by allowing customers to not only pay through supported cryptos but also through conventional financial platforms including wire transfers, ACH transfers and debit cards.
But more importantly, Coinbase only deals in four cryptos-- Bitcoin, Bitcoin Cash, Ethereum and Litecoin--all of which are likely to pass regulatory muster with the SEC. Related: Cryptocurrencies Continue To Show Subtle Gains
The commission has declared that cryptocurrencies designed to replace sovereign fiat currencies are not subject to securities laws adding that the vast majority of cryptocurrencies will be considered securities and will therefore be subject to stringent regulation.
Bitcoin and its clones, Bitcoin Cash and Litecoin, are designed to replace fiat currencies and are therefore almost certain to escape the SEC dragnet while Ethereum is also in the clear after the commission categorically said it's not a security.
Opening Up the Crypto Market
Coinbase is not the only exchange seeking the SEC greenlight.
Circle Internet Financial, a well-funded Coinbase competitor, is similarly pursuing a license to register as a securities exchange.
The biggest takeaway from these developments is that the crypto markets should now brace themselves for increased institutional participation, for better or for worse.
Wall Street has increasingly undergone a business model reboot since the arrival of Bitcoin futures. The presence of regulated exchanges is likely to encourage it to start investing directly in digital coins.
The jury is still out on whether this is good or bad for the industry. Fed researchers have claimed that the launch of Bitcoin futures has been responsible for depressing Bitcoin prices. Investors should probably expect more of the same when Coinbase and hordes of others gain the trust of these well-heeled investors.
By Alex Kimani for Safehaven.com
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