On June 6, Asiff Hirji, COO of the American Coinbase crypto trading website reported on the company's plans to obtain a brokerage and trading license from the Securities and Exchange Commission (SEC) of the United States. This license will allow the crypto exchange to expand the list of trading instruments, which, in turn, will affect the "entire cryptocurrency ecosystem.” A similar opinion is shared by other popular trading platforms like Circle, Kraken, and Gemini, which are actively working with the financial regulator of the country. What will this cooperation lead to and should the users of these exchanges wait for the appearance of new financial instruments based on cryptocurrencies?
Coinbase and SEC
According to CNBC, Coinbase currently has about 20 million users and trades assets worth $150 billion. If the crypto exchange gets the approval of the financial regulator, then it will allow it to add new assets to its listing, such as securities issued on the basis of blockchain.
Cooperation with the SEC will allow Coinbase to tokenize existing types of securities, which in turn will provide more "democratized access" to capital markets for investors and companies, and will reduce costs for all market participants and ensure a higher level of transparency of the entire ecosystem.
According to Hirji, in addition to the brokerage and trading license, Coinbase also plans to obtain a license to register an alternative trading system (ATS) and obtain a registered investment advisor (RIA) license. To do this, the company will acquire Keystone Capital Corp., as well as Venovate Marketplace, Inc., and Digital Wealth LLC, which will allow it to offer "non-crypto financial products."
Thus, Coinbase joins the growing list of crypto exchange sites keen on cooperating with financial regulators in order to provide various assets issued on blockchain.
Circle and SEC
Also on June 6, the Circle startup and peer to peer payment platform announced that it has applied for an SEC brokerage and trading license, and a federal level banking license from the Options Clearing Commission (OCC). The brokerage and trading license will allow Circle to trade security tokens, which the SEC equated to securities in July 2017.
Moreover, in an effort to gain the approval of the regulator, Jeremy Allaire, co-founder and CEO of Circle, said that the platform has already started to delineate tokens that do not comply with SEC requirements and this is their primary task:
"Now we decide what our legal position is on this issue, because you cannot just call the SEC and ask: ‘Are these tokens securities?’ Therefore, you can expect that delisting will continue and this is the most prudent thing that we can do now."
Such tokens were listed on Circle after the purchase of the Poloniex cryptocurrency platform, which took place in February of this year. First, the company plans to obtain a license as a broker and trader, and only then the banking authorization from the OCC. According to COO of Circle, Robert Bench, the banking solution will significantly reduce the number of regulators the platform needs to constantly interact with. And this, in turn, will increase the efficiency of the platform and reduce its costs. Also in May of this year, representatives from Coinbase met with the OCC in order to obtain a federal banking license, but the company refused to comment on the outcome of this meeting.
Kraken and SEC
In mid-May, the American crypto exchange Kraken also announced that it is considering the possibility of applying to the SEC for a brokerage and trading license, and plans to register as an alternative trading system (ATS). This was announced by the platform's CEO Jesse Powell:
"Probably we will register as a broker dealer and as an alternative trading system. I do not think that there is a direct need for business. But, I think that at the moment this is the right decision."
When registered as an ATS, the platform obtains the right to trade outside of public exchanges. This step will provide the SEC with more authority in regulating and supervising the Kraken's crypto exchange activities. In order to go through the registration process as an ATS, however, the SEC should clarify its position regarding trade in security tokens.
Gemini and SEC
The Gemini exchange was founded in 2015 by the Winklevoss brothers with the support of the Financial Services Department of New York. In this connection, Gemini complies with all legal norms, and is also one of the few crypto exchanges holding a license from BitLicense, which is issued only after the exchange has proved that it corresponds to a long list of rules for working with cryptocurrencies.
Despite the support from financial state authorities, however, as well as the existence of partnerships with such major exchanges as Nasdaq, in March 2017, the SEC denied Gemini registration of the first exchange-based Bitcoin fund (ETF). Such an exchange fund would allow traditional and institutional investors to safely invest in Bitcoin trading. As the reason for the refusal, the SEC named the fact that the crypto market is an unregulated industry, and as such, Bitcoin cannot be recognized as an asset that is resistant to manipulation and fraud.
Nevertheless, in May of this year, the Winklevoss brothers received approval for an exchange trade patent (ETP) based on cryptocurrencies. The patent describes a system for processing transactions with exchange products based on cryptocurrencies, such as Bitcoin, Ether, Ripple, Dogecoin, and BBQCoin. The value of this type of securities is determined by the investment instruments to which they are tied, that is, the cryptocurrencies. This indicates that the Winklevoss brothers are not losing hope of obtaining permission to register the world's first exchange-based Bitcoin fund. According to experts, obtaining an ETP patent, which includes an ETF, is proof that the Winklevoss brothers are on the way of getting approval for cryptocurrency ETF trading from the SEC.