Coinbase Claims Under Scrutiny

Coinbase launched its exchange program earlier this week on January 26th, claiming to be “the first fully regulated exchange in the United States.” The statement reverberated across mass media headlines.

• Bitcoin gets first regulated US exchange – CNBC
• First U.S. Bitcoin Exchange Set to Open – The Wall Street Journal
• The First Licensed U.S. Bitcoin Exchange Will Open Today – Gizmodo

Commissioner for The California Department of Business Oversight, Jan Lynn Owen, released a consumer alert on the 27th stating, “Numerous press accounts about Coinbase’s Jan. 26 launch of Coinbase Exchange erroneously reported the Exchange has received regulatory approval from the State of California.”

“California consumers should be aware Coinbase Exchange is not regulated or licensed by the State.”
— – Owen

New York officials stated the situation there is very similar to that of California.

“We are working with several companies, including Coinbase, on licensing and will continue to move forward expeditiously,” said a spokesman for the superintendent of New York’s Department of Financial Services. “That said, we have not yet issued any licenses to virtual currency firms.”

Regulation is a complex field in the US. Coinbase’s claim to be the “First Regulated Bitcoin Exchange” has drawn criticism from other US exchanges. CoinX began the regulation process two years ago. According to Vice President of Operations, Faisal Khan, CoinX started applying for licenses in 2013.

“Our exchange went live on 31st August 2014.”
— – CoinX VP, Faisal Khan

Each state in the US has it’s own licensing requirements and associated costs. According to Grimes Law PLLC, to conduct business on a national level, the application fees alone come to just under $7 million USD.

Of the 50 states in the US, Coinbase currently offers services in 25 states; CoinX offers services in 37 states, and the District of Columbia. This qualifies both companies to trade under the label of Money Service Businesses, the same as companies such as Western Union and Paypal.

Cameron and Tyler Winklevoss also plan on launching a US regulated Bitcoin exchange, centered in New York. The Empire State is currently in the process of finalizing its Bitcoin regulation, commonly referred to as New York’s BitLicense.

The Winklevoss twins have already applied for a different type of Bitcoin regulation, by registering an Electronic Traded Fund (ETF). The ETF, based on Bitcoin, is overseen by the U.S. Securities and Exchange Commission.

“Part of the equity revolution, in the 1990’s and early 2000’s, was due to the roll out of ETFs that made all manor of asset classes and global equities accessible to average investors in the richest nations globally”
— – CEO of BitMex, Arthur Hayes

Hayes is a former derivatives trader, and founder of BitMex; “Examining the recent “launch of Coinbase” announcements, the [main stream media] fell over themselves to report about the “first” regulated US exchange. Coinbase was not the first US exchange to have money service business licenses. However, to the average investor, what the Wall Street Journal, Financial Times, Bloomberg, and Reuters reports is gospel. With the NYSE at one’s back, history becomes a pliable tool at one’s disposal.”