New York – Brian Armstrong, co-founder and CEO of cryptocurrency exchange Coinbase Global, has emerged as one of the last major players standing in the crypto industry after a turbulent year of high-profile collapses and government crackdowns.
While competitors like FTX’s Sam Bankman-Fried and Binance’s Changpeng Zhao boasted meteoric rises and stunning falls, Armstrong has kept his company afloat despite plummeting crypto prices and ongoing run-ins with regulators.
Coinbase is one of the few large crypto exchanges left in the U.S. after the implosions of FTX, Celsius Network, and Voyager Digital. Armstrong has continued expanding Coinbase’s products and services, pushing into international markets, and forging ties with traditional Wall Street institutions – aiming to establish the company as the go-to platform for mainstream crypto adoption.
Most notably, Coinbase’s custody arm was appointed to safekeep the assets of several Bitcoin spot ETFs approved by the Securities and Exchange Commission (SEC) last week. Serving as custodian earns Coinbase fees based on the total assets under management.
The ETF approvals marked a major milestone for the crypto industry. But Coinbase and Armstrong now face a critical test in their ongoing battle with the SEC.
Regulatory Wrangling
Coinbase is set to appear in court this week petitioning a federal judge to dismiss a lawsuit filed against the company last June. The SEC alleges Coinbase unlawfully offered and listed unregistered securities.
At issue is the SEC’s long-held stance that most cryptocurrencies are securities. The agency says Coinbase traded at least 13 digital assets deemed securities without proper registration. This violates laws designed to protect investors, the SEC claims.
Armstrong has become increasingly vocal against what he calls the SEC’s “enforcement-only approach” to crypto regulation. With new Chairman Gary Gensler at the helm, Coinbase argues the agency is stretching its authority and setting law on a case-by-case basis rather than collaborating with the industry.
The SEC’s approval of Bitcoin ETFs last week was a blow to its argument. The decision came largely in response to the agency losing a separate court case trying to block similar funds.
If the lawsuit moves forward, legal experts say Coinbase faces an uphill battle getting it dismissed. The company risks being forced to delist assets designated securities and halt staking programs that allow customers to earn yields on crypto holdings.
Roughly one-third of Coinbase’s revenue could evaporate, per analyst estimates. But even if the company loses in court, any resolution would likely take years. Coinbase’s chief legal officer Paul Grewal said the company is prepared to litigate into 2025 or longer before a potential trial.
Armstrong’s Influence Campaign
With regulators bearing down, Armstrong has stepped up efforts to shape crypto policy and regulation in Washington.
Last September, the CEO brought dozens of industry executives to Capitol Hill to lobby lawmakers. Coinbase warned that failure to provide clear rules for crypto risks American innovation, jobs, and technology leadership.
The company also hired ex-lawmakers like former Senator Pat Toomey as advisers and donated over $1 million to a pro-crypto political action committee.
For many, Armstrong is filling the void left by Sam Bankman-Fried in lobbying lawmakers before FTX’s collapse. The downfall of Bankman-Fried and Changpeng Zhao has left Armstrong one of the few high-wattage stars still actively leading a major crypto exchange.
Business Challenges
But Coinbase faces hurdles beyond regulatory uncertainty. The company has struggled to turn a profit after the crypto market meltdown last year.
Its stock soared in 2022 on rebounding Bitcoin prices, but at around $170 per share, Coinbase still trades 80% below all-time highs. Revenue from crypto trading has declined as rivals like Binance eat into market share.
Some analysts doubt whether Coinbase’s custody business can produce meaningful revenue over the long-term. A fee war is already underway between new Bitcoin ETF issuers, potentially squeezing margins.
Ironically, the ETFs could also reduce exchange volume if investors buy Bitcoin through funds rather than directly on platforms like Coinbase.
For now, the company aims to grow its subscription services, ramp up international expansion, and roll out novel products – seeking new income streams beyond trading fees.
Long-Term Vision
Armstrong has kept Coinbase on relatively solid ground even as the winds of crypto fortune have reversed course. But legal and business challenges remain formidable.
The CEO has shown willingness to play politics and invest in lobbying – but Washington may have little appetite for a light touch approach after recent industry scandals.
With Armstrong’s sway growing, some warn that Coinbase could end up wielding too much power. Few companies are left with the resources and stature to influence policymakers and regulators.
Yet Armstrong has also preached deference to regulators and tried separating Coinbase from more freewheeling crypto startups. The company stresses compliance, avoiding token listings deemed securities, and working within existing laws.
Coinbase is betting mainstream adoption depends on playing nice with financial gatekeepers. Armstrong aims to shepherd crypto into the institutional fold – even if the path forward is sure to narrow.
