CRYPTO MOVERS AND PRICES
Bitcoin (BTC) is recovering from yesterday's sell-off but remains below prior highs. Volumes have remained elevated across spot trading venues.
Crypto Story of the Day
On December 17, Coinbase recorded USD 1.184 billion in bitcoin (BTC)/USD volume, outperforming offshore counterpart Bitfinex by USD 675 million. Growing Coinbase BTC/USD volume compared to Bitfinex has been ongoing since the spring of 2019. We explore this data point in the context of Coinbase’s IPO and crackdowns on offshore crypto exchanges.
Coinbase’s impressive December 17 volume is second only to the record achieved during the 2017 bull run. The day also coincided with the exchange revealing its planned IPO. Coinbase has largely employed an approach that embraced U.S. regulation and proactively sought to appease regulators, such as their suspension of margin trading last month. This approach has been explicitly defined by CEO Brian Armstrong several times. In 2018, for example, Armstrong said “we want to be the legal compliant place where you can start to trade these tokens that are classified as securities.”
Coinbase has also emerged as the source for Microstrategy’s high-profile purchase of USD 1.125 billion worth of BTC over the past several months using its Prime Services platform. Coinbase’s offshore counterpart, Bitfinex— headquartered in Hong Kong and registered in the British Virgin Islands— has taken a wholly different approach.
Bitfinex complies with a range of global anti-money-laundering and know-your-customer (AML and KYC) standards, regularly assists with international law enforcement, and handles billions of USD daily. Its approach has not been to avoid regulation at large, but specifically most elements of U.S. regulation by simply avoiding the country through geo-blocking its residents. Bitfinex and stablecoin firm Tether, managed by the same executives, have also been under investigation by the New York Attorney General (NYAG) since April 2019.
We have previously written that U.S. actions such as those against Bitfinex/Tether and BitMEX suggest that the U.S. is allowing a pathway forward for crypto investment, but on their own terms. Coinbase’s decision to attract the attention associated with an IPO likely means it believes it’s in sync with this path forward.
The U.S. government’s vision for a BTC market located within the U.S., following U.S. rules, and large enough to withstand price manipulation on other venues was somewhat hinted at in numerous SEC denials of BTC exchange-traded funds (ETFs) in 2018/2019. The regulator cited a lack of a “surveillance-sharing agreement with a regulated market of significant size” and largely dismissed Bitwise’s claims in a presentation to the SEC that venues with verified volumes are “resistant to manipulation.”
Bitwise’s presentation placed Coinbase’s March 4-8 2018 volume as fifth behind non-U.S. venues Binance, Bitfinex, Bistamp, and U.S.-based Kraken. Coinbase's increasing market share versus offshore platforms paints the picture that the recent wave of new entrants since August shows some kind of a preference to the perception of regulatory safety offered by the platform.