Coinbase to Acquire Licensed Broker-Dealers to Offer Securities

The United States Securities and Exchange Commission (SEC) has given Coinbase approval to buy three companies, including Keystone Capital Corp, Digital Wealth LLC, and Venovate Marketplace Inc. Keystone Capital and Venovate Marketplace are officially registered as broker-dealers with the SEC and FINRA. Once the acquisition is complete and these companies merge with Coinbase, it will have the ability to offer securities trading. This makes Coinbase the first crypto exchange that will be able to offer crypto securities trading to US citizens.

This move is crucial, since the SEC recently declared that almost all cryptocurrencies besides Bitcoin and Ethereum would be regulated as securities. Essentially, any cryptocurrency which has a central organization that is making profits, combined with an expectation of future profits from investors who buy the coin, will be considered securities. Practically all crypto which launched via initial coin offerings (ICOs) fit this definition, and many major crypto with market caps in excess of USD 1 billion were launched with an ICO.

Recently, Coinbase announced that it would be adding five new cryptocurrencies including 0x, Zcash, Stellar, Cardano, and Basic Attention Token, and this move to become an SEC-regulated broker-dealer is essential to facilitate the listing since some of these cryptocurrencies can be considered securities. In general, becoming a broker-dealer will allow Coinbase to add a full spectrum of ERC-20 tokens in the future.

Although nothing has been announced regarding this yet, becoming a broker-dealer will allow Coinbase to actively participate in ICOs. Perhaps Coinbase will offer services to make ICOs legitimate, a move that would fit SEC’s requirement for regulatory oversight in ICOs. The ICO market is huge, having raised USD 12 billion in 2018 so far.

Circle, Coinbase’s competitor, is also seeking registration as a broker-dealer with the SEC. This is essential for Circle, since it recently acquired Poloniex and was forced to delist most of the coins since those coins could be considered securities. In general, any cryptocurrency exchange in the US will miss out on a significant amount of trading activity without being able to offer securities, and firms like Coinbase that can offer securities will have an advantage.

It will take some time before Coinbase starts offering crypto securities. It has to integrate its technology into the companies it is acquiring, and make sure all employees obtain proper licensing to participate in securities trading.

 

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