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Coinbase CEO Brian Armstrong charms the Brits on transatlantic tour, Tether comes under fire in a debate on a draft stablecoin bill and US lawmakers clash on whether crypto was to blame for recent bank failures.
In the latest twist in Coinbase’s struggles with US regulators, the crypto exchange is now considering leaving its home country and re-settling its headquarters in the UK.
This week, Coinbase CEO Brian Amrstong has been on a charm offensive in the UK, where he met with national media journalists, Bank of England officials and current and former Cabinet ministers.
At the Innovate Finance Global Summit, the flagship event of UK Fintech Week, Armstrong featured as a headline speaker, where he took part in a fireside chat with former chancellor George Osborne.
“The UK is our second-largest market in terms of revenue,” said Armstrong. “We’re founded in the US, and I think the US has the potential to be an important market in crypto, but right now we’re not seeing the regulatory clarity we need.
“If a number of years go by where we don’t see regulatory clarity emerge in the US, we may have to consider investing more elsewhere and relocating wherever is necessary.”
During the conference, Armstrong also revealed that he had met with Andrew Griffith, economic secretary and City minister, to discuss UK crypto legislation.
“The UK is moving fast on sensible crypto regulation to both drive economic growth AND consumer protection,” Armstrong tweeted after the meeting. “I’m excited to keep investing in the UK.”
Armstrong said he discussed several points of contention with Griffith, including restrictions that UK banks have placed on customers depositing money to crypto exchanges, an imposition that Armstrong described as “not OK”.
“Good fraud controls make sense, a blanket ban does not (and is likely not lawful),” he said. “This needs further education and collaboration.”
Armstrong also said that the new financial promotions regime of the Financial Conduct Authority (FCA) is excessive in its crypto provisions.
“The financial promotion regime goes too far if there is a 24-hour ‘cooling off’ period for crypto trades,” he said. “This harms real-world use cases, formation of capital markets and consumers.”
In other interviews, Armstrong praised the UK for its historical friendliness towards crypto firms and for being among the first-movers towards comprehensive crypto regulations.
“The UK has been a bit of a leader here,” said Armstrong, speaking to Sky’s Jon Craig. “I've been really admiring the leadership from Rishi Sunak and the city minister here in London.
“Five years ago, the UK created this regulatory sandbox that was actually very ahead of its time.”
Armstrong also spoke highly of the EU’s Markets in Crypto-Assets Regulation (MiCA), which was passed almost unanimously on Thursday (April 20), and he announced that Coinbase has been granted a licence to operate an offshore crypto exchange in Bermuda.
Additionally, Coinbase is exploring its options for an exchange licence in Abu Dhabi, is moving towards becoming fully regulated in Canada and has launched new services in Brazil and Singapore.
Tether targeted in US stablecoin debate
In the US, Tether came under fire in a debate on a new bipartisan stablecoin bill, introduced to the House Financial Services Committee by Representative (R-NC) Patrick McHenry and Representative (D-CA) Maxine Waters. Covered by VIXIO last year, the bill was made public for the first time this week.
Austin Campbell, adjunct assistant professor of business at Columbia Business School, joined the debate as an expert witness, and argued that Tether has been the “biggest winner” of the crypto crises of the past year.
“They are offshore,” he said. “They don't work well with us. They facilitate some activity they probably shouldn't, but the chaos is leading that stablecoin to grow while others shrink.”
Asked by Representative (R-OH) Warren Davidson how Tether, which is headquartered in Hong Kong, was able to gain such dominance, Campbell said this is the result of a first-mover advantage — having launched in 2014 — and historic inaction from regulators.
“Tether has not faced the same kind of regulatory uncertainty,” he said. “They don't have the concerns that others do about having to conform with something relatively strict and relatively demanding, like the NYDFS guidance.
“They're not transparent, it's unclear if they've always had all the reserves and it puts people at risk. But when they are the default option — because others are being hamstrung — it's what people use because there's demand for dollars on a blockchain.”
As VIXIO has written previously, Tether has been banned from doing business in New York since February 2021, after reaching a settlement with the Department of Financial Services (DFS) over allegations that it had lied about its reserves.
Both before and after that order, however, Tether’s largest customer was FTX, whose US subsidiary was able to market to Americans, including those based in New York.
By the time FTX collapsed in November 2022, it had received more than $36bn in stablecoins from Tether via Alameda Research, its trading affiliate.
“Because they don't have the transparency and disclosure requirements, I've at times referred to it as a time-bomb,” said Davidson, referring to Tether.
Did crypto destroy the crypto-friendly banks?
Finally, Securities and Exchange Commission (SEC) chair Gary Gensler sat for more than five hours of questioning in a separate hearing of the House Financial Services Committee.
He covered a wide range of topics, including potential changes to federal securities laws — which VIXIO will cover in a forthcoming article — insider trading, the FTX collapse and the US banking crisis.
Responding to a question from Representative (D-OH) Joyce Beatty, Gensler pointed out that Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank all had one thing in common: exposure to the crypto industry.
“I would note there were three banks that failed in a handful of days,” said Gensler. “Two of those banks were engaged in the crypto business — some would say they were crypto banks — and the third, SVB, had $3bn from the world’s second-leading stablecoin.”
Referring to Circle’s USDC, Gensler pointed out that the run on SVB caused the stablecoin to de-peg. “It's interesting how this was all a crypto narrative,” he said, gesturing with his hands as if to say these events are interconnected.
Prior to this week, Senator (D-MA) Elizabeth Warren and Representative (D-NY) Alexandria Ocasio-Cortez also sent a letter to Circle CEO Jeremy Allaire demanding to know why the company held such a large uninsured deposit at a single bank.
However, when Adrienne Harris, head of the DFS, took questions on the failure of New York-based Signature Bank, she said crypto was not to blame.
“It’s a misnomer to say that the failure of Signature Bank was related to crypto,” she said. “The outflow of deposits were from a broad depositor base, including wholesale, food vendors, fiduciaries, trust accounts and law firms.”
Harris said about 20 percent of Signature Bank’s depositors were crypto firms, and that on the day of the bank run, these depositors withdrew their money in equal proportion to that of customers from other sectors.
