The crypto world has been abuzz with one word: regulation. After the US Securities and Exchange Commission (SEC) cautioned Coinbase to slow its plans to launch a derivatives trading feature, the crypto exchange has been in a constant conflict with non-existent regulatory measures that SEC still fails to define publicly.
On the one hand, SEC's hesitation is understandable. The regulator cannot risk issuing rules that are inherently flawed. Yet, the lack of rules and the occasional issuance of a warning or two have worked Coinbase's last nerves.
The crypto exchange has been eager to dive into derivative asset trading, as the market for such crypto assets is huge and their profitability, even more so.
This ruffled SEC's feathers. However, Coinbase has stuck with protocol, first filing an application with the National Futures Association and then looking to follow up with Commodity Futures Trading Commission approval.
Lack of clear regulation has given competitors such as CoinGecko and Deribit the opportunity to attract bigger customer bases and arguably earn more, as they are not too keen on being fully-regulated it seems. Yet, Coinbase has chosen to play nice with the (non)-existent regulatory framework in the US, following an initial public offering which was a success.
Coinbase has not shied away from new listings, though. The exchange listed Dogecoin rival, Shiba Inu, earlier this week, after Elon Musk purchased a single token and skyrocketed its price.
And as all of this unfolds, Mark Cuban, the famed Shark Tank investor and Dallas Mavericks owner, made a public statement and encouraged Coinbase's CEO Brian Armstrong to “take arms” and push back against SEC. Asked how this should happen, the Mavericks boss tersely replied that it was for Coinbase to figure that out.
Regulatory Uncertainty Hurts Business
We can all be gung-ho about cryptocurrency and believe in its broader adoption, but to make crypto matter in ten years' time, we need a regulatory framework that makes it happen.
This is even more obvious after Moody's Investor Service rated Coinbase's at non-investment grade, which is essentially “junk” in financial jargon. Coinbase’s financial profile suggests investment grade credit strength, but for now the uncertain regulatory environment and fierce competition offset these strengths”, said Moody's analyst Fadi Abdel Massih, joined by several colleagues.
Price fluctuations are also a danger to Coinbase, of course, as Ethereum, Bitcoin and Dogecoin remain volatile. That is precisely why Coinbase is looking to diversify its product offering.
Actually, regulation is not just impeding Coinbase's success, it's holding the industry down as a whole. SEC has already launched an investigation into “gamification websites” such as Robinhood, effectively curbing these financial platforms' ability to grow.
While SEC is within its rights to protect consumers, it should also understand that without clear-cut regulatory frameworks, much of the innovation and progress achieved so far will be stifled.