Coinbase Says It Will Be 'Net Beneficiary' Amid Heightened Regulatory Scrutiny

Coinbase, the leading cryptocurrency exchange in the U.S., took an opportunity to address the current regulatory landscape in its Q4 2022 earnings report released Tuesday, saying it is in a strong position to overcome both existing and future challenges.

The San Francisco-based company insists it has built “reliable infrastructure, a durable business model, and a strong balance sheet,” while prioritizing “prudent risk management” and “transparency with customers, market participants, and government authorities, all to help encourage the cryptoeconomy’s development.”

Coinbase sales totaled $605 million in the previous quarter, beating analyst expectations that anticipated revenue would come in at around $588 million.

According to Coinbase, one of the advantages it has over its competitors is its rigorous process of evaluating digital assets before listing on the spot market, with the majority of cryptocurrencies not meeting the exchange’s listing requirements and being rejected as a result.

Additionally, the exchange has been staying away from offering high-leverage products, “which has both protected consumers and helped us avoid credit risk.” It doesn't operate as a market maker that trades against customers or issues exchange tokens.

“We expect 2023 to be a year of regulatory focus and we believe our strong foundation will make us a net beneficiary of this new environment,” Coinbase reported.

Coinbase seeks cooperation with regulators

Coinbase still has a potential SEC probe hanging over its head investigating whether the exchange let Americans trade cryptocurrencies that should have been registered as securities.

The firm, however, once again reiterated it does not believe it has violated any securities laws, adding that its staking products and the USDC stablecoin “are not securities” either.

Coinbase also said that when it identifies any issues, it works “to remediate as quickly and thoroughly as possible,” which was most recently evidenced by the exchange’s $100 million settlement with the New York Department of Financial Services (NYDFS).

NYFDS had accused Coinbase of violating the New York Banking Law and state regulations regarding virtual currencies, money transmitting, transaction monitoring, and cybersecurity. The Department, however, said the exchange already started to improve its practices.

“We remain committed to working with global regulators and policymakers to drive prudent regulation to this emerging asset class,” said the exchange.

Looking at the challenges ahead, Coinbase expressed its disappointment about “not seeing regulators necessarily welcoming transparency and public participation in their rule-making,” as well as the U.S. agencies “demonstrating a disjointed stance regarding crypto that is pushing the industry overseas.”

“In the absence of federal legislation, public rulemaking is a necessary step for regulators seeking jurisdiction over parts of the industry,” said Coinbase while pointing to positive regulatory developments in other countries, including the UK and the European Union.