REGULATION: Why Coinbase would want an OCC bank license


What do you do if you business prints $1 billion per year (Coinbase) or $200 million per quarter (Binance), but people in suits still think what you do is at best a bubble and at worst a scam? Sure, you can hop from jurisdiction to jurisdiction trying to find a friendly regulator. Or, you can try to play by the existing rules and pay for the compliance overhang. While many Fintech companies complain about how expensive and time consuming licensing is (looking at you digital lenders and neobanks), crypto exchanges can afford it. Especially crypto exchanges that want to build out a custody business and make a spread on customer funds.

The WSJ reported that Coinbase approached the OCC earlier in 2018 about a banking license. This should not be a surprise, but a natural institutionalization of the crypto sector. Unlike Fintech, which still struggles to persuade customers that they need financial products over the web, crypto is actually something that consumers want. In an age where Millennials are saddled with record generational debt, everyone wants to buy lottery tickets. And if you accumulate a large enough consumer base, building from crypto to payments, from payments to deposits, and from deposits to financial advice is a natural path. We've written before about the links between regulatory custody and legitimacy -- and symptoms like Nomura partnering with Ledger to offer this, given the popularity of the asset class in Japan, prove the point.

Unlike Coinbase, which may cash in its chips into the traditional financial system, exchanges like Binance and Huobi have gone the other direction by pursuing token offerings to the crowd. For an upcoming analysis, we looked deeper into Huobi and again come away with a raised eyebrow. The token is a discount coupon on future trading fees, with a vague promise attached to exclusive access and events, and a promise to link to airdrops. It trades into other crypto currencies on the, you guessed it, Huobi exchange, which means that belief in its value can be monetized immediately. And there's now about $250 million of this belief, according to Coinmarketcap. That reflects very short-term thinking in our view, but such financial engineering isn't unique to crypto. Last we remember, JP Morgan and Goldman were called out for "laddering", i.e., manipulating the price trajectory of Initial Public Offerings during the tech bubble. Now laddering is built into software and promoted by bots. History rhymes!

Source: WSJ ( Coinbase ,  Laddering ), Cointelegraph ( Nomura custody ), Coindesk ( Huobi ), American Banker ( graphic ), Harvard Law School ( laddering )

Source: WSJ (CoinbaseLaddering), Cointelegraph (Nomura custody), Coindesk (Huobi), American Banker (graphic), Harvard Law School (laddering)