2024 Crypto Investments: Breakdown of Coinbase's MiFID License

Coinbase Global, Inc. (COIN) claims to be mobilizing efforts to enhance economic liberty for more than a billion individuals worldwide. As part of this monumental undertaking, COIN is steadfastly focused on the creation and global expansion of trusted, fully compliant products and services.

In adhering to its "Go Broad, Go Deep" strategy, COIN is forging a pathway grounded in regulatory clarity, licensure, and registration to facilitate its international growth. Its Five-point Global Compliance Standard reinforces the company's pledge to make its products and services the most trustworthy in the market.

In its continuous bid for optimal regulatory compliance, COIN ensures that each entity fulfills its Five-point Global Compliance Standard before any license gets operationalized or any customer is served. This standard encompasses critical elements like Know Your Customer (KYC) processes, anti-money laundering measures, governance best practices, and ongoing monitoring and reporting procedures.

The application of this bespoke compliance standard and furthering strategic inputs have coalesced to yield significant progress for COIN in the past year. The company rapidly expanded, launching new operations in critical markets and initiating a range of derivative products. Yet, it begs the question – why is COIN so assertive in broadening its reach beyond American shores?

In the past year, COIN has aggressively pursued expansion globally, contending with increasing difficulties domestically. The firm is currently embroiled in a lawsuit instigated by the U.S. Securities and Exchange Commission, accusing it of securities law violations.

In October, the company chose Ireland as its primary regulatory base within the European Union in anticipation of impending crypto regulations denoted as the Markets in Crypto-Assets (MiCA). It also applied for a single MiCA license, which is expected to be granted by December 2024. Additionally, COIN recently procured a virtual asset service provider license from France, giving them clearance to offer crypto trading and custody services in the country.

Continuing its global expansion, COIN hopes to acquire a Cyprus-based entity with a European Union MiFID (Markets in Financial Instruments Directive) license. This acquisition would potentially widen access to its derivative products and extend services to qualified customers in selected EU countries, and it is contingent on regulatory approval. The closure of this deal is anticipated later in 2024.

COIN does not currently extend its crypto derivative offerings to the UK due to a January 2020 ban by the Financial Conduct Authority, which declared these products as "ill-suited" for retail consumers because of their inherent risks. However, in the U.S. and other international markets, COIN offers trading in bitcoin futures and ether futures, including "nano" ether futures and West Texas Intermediate crude oil futures.

The EU’s MiFID is one of the world’s most highly regarded licensing regimes regulating investment services and activities. MiFID has established a comprehensive single rulebook across the EU and is a central pillar in the EU’s Capital Markets Union strategy.

Could it be a critical battlefield for COIN?

In recent years, digital currencies have revolutionized the financial industry, challenging traditional economic systems by gaining appeal both as investment assets and transactional mediums. A particularly dynamic and swiftly growing segment within the cryptocurrency market is that of crypto derivatives, which experienced significant expansion and shows no signs of abating.

Derivatives are financial instruments that derive their value from the performance of an underlying asset. In traditional financial markets, derivatives are linked to assets like stocks, bonds, commodities, and fiat currencies. Within the cryptocurrency world, these financial instruments derive their value from digital assets like Bitcoin and Ethereum.

Crypto derivatives operate on principles similar to traditional derivatives, involving a contractual agreement between a buyer and a seller to exchange an underlying asset at a predetermined time and price. Unlike owning the actual asset, derivative traders do not possess the underlying cryptocurrency.

According to COIN, derivatives constitute over 75% of the global cryptocurrency market, highlighting their significant contribution to broadening the spectrum of investment possibilities in the Bitcoin sector.

This acquisition bodes the potential to usher in a substantial revenue source for the exchange in Europe. Impressively, regulators have given COIN the green light to provide derivative products to non-US retail consumers and qualified U.S. customers.

COIN marked its entry into the derivatives market in May with the initiation of an international derivatives exchange in Bermuda. Subsequently, it extended its provision of crypto derivatives to U.S. customers in November upon securing regulatory clearance from the National Futures Association.

However, despite its proactive strides, COIN is grappling with robust competition from entrenched market participants in the derivatives sector. Predominantly, COIN must face off with its primary adversary, Binance – a behemoth in the crypto-linked derivatives market, along with other players, including Bybit, OKX, and Deribit.

According to CoinGecko data, Binance recorded a whopping $61.39 billion in futures contract trading volume in just the preceding 24 hours – a stark contrast to COIN's much smaller volume of $299.48 million on its international derivatives exchange.

Even though a derivative's value depends on the performance of an underlying asset, index, or rate, it can significantly influence the market dynamics and investment strategies. Consequently, it can be an effective tool for capitalizing on market fluctuations and managing risk within the financial sphere.

Bottom Line

COIN, a leading cryptocurrency exchange with a whopping market cap of over $38 billion, is making strides with its MiFID pursuit – a move that bodes well for investor confidence. This demonstrates the firm’s growing ambition to expand its global footprint and compete with notable players in the market. Equally important, it underlines COIN's commitment to meet the stringent compliance standards that the EU upholds.

Furthermore, the MiFID pursuit could enhance COIN's reputation and boost its valuation as it aims to harness the potential of crypto derivatives in establishing a more equitable, accessible, efficient, and transparent financial system fortified by cryptocurrency.

A formative player in the financial sphere, COIN has spent the last 12 years curating its robust offerings to institutions such as hedge funds and high-frequency trading firms. This bid to benefit from larger transaction volumes these traders bring could revolutionize the company. Should COIN finalize the deal, this would mark the company's inaugural launch of derivatives trading in the EU.

Moreover, crypto derivatives play a pivotal role in enhancing market liquidity, acting as an essential tool for risk management in the volatile crypto market. They also offer traders opportunities to diversify investment portfolios across various crypto assets while employing advanced trading strategies like arbitrage and short-selling.

In November, derivative trading volumes on centralized exchanges saw an unprecedented surge, marking their highest levels since March 2023. The potential growth in derivatives trading is unequivocal, paving the way specifically for COIN to capitalize on its stellar reputation and appeal to institutional clients.

Moving forward, investors could keep an eye on COIN for better entry opportunities.

Why Coinbase (COIN) Might Be Your Best Crypto Investment in 2024

Over recent years, Exchange Traded Funds (ETFs) have grown increasingly popular, presenting a diverse range of assets that include commodities, stocks, and indices. Within this mix, Bitcoin Spot ETFs offer regulated avenues for corporations and institutions to invest in cryptocurrency.

Bitcoin Spot ETFs have a specific goal: To track Bitcoin's value through the possession of the actual digital currency. In essence, these ETFs function by acquiring Bitcoin and subsequently issuing shares based on the underlying cryptocurrency's value. Therefore, Spot ETFs are engineered to afford investors direct access to Bitcoin’s price fluctuations.

However, the approval for Spot ETF is pending. On January 10, the U.S. Securities and Exchange Commission (SEC) will decide regarding the approval of Bitcoin Spot ETF applications that several firms have submitted.

As the world continually evolves, Coinbase Global, Inc. (COIN) goes far beyond mere adaptation – it spearheads change. COIN, a prestigious cryptocurrency exchange, offers trading, custody and other services for various digital assets. It is implementing savvy strategies and revamping its leadership team to prepare for what could be an industry-altering phenomenon: the sanctioning of Spot Bitcoin ETFs.

This bold move is motivated by a dynamic combination of anticipation and strategic readiness. COIN isn’t merely passively awaiting regulatory approval; it is actively orchestrating the environment for it.

Let’s see how…

COIN’s Leadership Shuffle and Strategic Readiness

The cryptocurrency sector is anticipated to extend custodial services to traditional financial institutions that have lodged applications for spot Bitcoin ETFs.

Recently, Aaron Schnarch departed from his role as CEO of Coinbase Custody, a trust company regulated by the New York Department of Financial Services and audited by Deloitte & Touche.

Mr. Schnarch left the company in August and was superseded by Rick Schonberg, according to the company representative. Mr. Schonberg has been part of COIN since 2021.

COIN is the preferred custodian among Bitcoin ETF contenders such as BlackRock, Franklin Templeton, and Grayscale Investments, based on Bloomberg Intelligence data.

For potential Spot Bitcoin ETF managers, custody services are crucial to their operation, as investors depend on these services to maintain the tokens securely. This need has prompted leading financial institutions to enlist COIN for these services on approval of their funds.

This shift in leadership signifies more than a mere change in staff – it represents a purposeful strategic shift. Schonberg, a seasoned pro with experience from Goldman Sachs, brings not just his expertise but also a significant vision – one where COIN doesn't merely participate in the Spot Bitcoin ETF market but aims to dominate it.

COIN's preparations for the anticipated approval of spot Bitcoin ETFs are comprehensive. They are creating a robust infrastructure capable of managing an expected increase in trading volume, liquidity, and overall market demand. Much like a dam built in anticipation of a flood, COIN eagerly awaits what may prove to be substantial market growth.

Anticipated Regulatory Decisions and Potential Market Implications

Let’s talk about the elephant in the room now…

The subject of pending decisions by the U.S. SEC on Bitcoin spot ETF approval cannot be overstated. It feels like the eager anticipation of rain during a prolonged drought – an endless skyward gaze with little reprieve.

However, recent proceedings indicate that the U.S. judiciary is gently nudging the SEC toward a decision, igniting hope for impending regulatory clarity. COIN appears well-equipped for such a monumental shift, utterly prepared to harness the resulting opportunities in what could be a watershed moment for the digital assets industry.

Speculations surrounding the approval of Spot Bitcoin ETFs have already sent tremors through the financial markets. The volatile ebb and flow of Bitcoin prices mirror the suspense typically reserved for a blockbuster thriller.

Amid this volatility, COIN remains positioned to emerge as a triumphant player, ready to capitalize on favorable market outcomes. Noteworthy entities like BlackRock, Franklin Templeton, and Grayscale Investments are already aligning themselves in anticipation of this financial revolution. The potential of Spot Bitcoin ETFs isn't merely significant; it's somewhat monumental, offering a bold forecast into the future of digital finance.

Should the SEC decide to reject Bitcoin ETFs, it wouldn't only be obstructing undertakings from cryptocurrency-focused entities but also major fund giants.

For instance…

BlackRock, one of these prominent fund organizations, is seeking approval for a spot Bitcoin ETF, selecting COIN as its dedicated crypto custodian. As the appointed crypto custodian, COIN will be entrusted with the responsibility of storing and protecting the Bitcoin assets that substantiate the ETF. They will also extend data handling and infrastructure support to BlackRock.

SEC’s approval could potentially propel COIN's revenue and prominence in the market while positively influencing the demand and value of Bitcoin. However, if the SEC were to repudiate the proposal, it could be detrimental to COIN, causing a significant setback in their financial growth as the custodial fees would not materialize.

Bottom Line

Spot ETFs would offer several advantages to investors, chiefly offering a simplistic, straightforward avenue to trade in Bitcoin, sidestepping the intricate tasks involved in purchasing and storing the cryptocurrency. Moreover, spot ETFs are regulated investment vehicles, heightening the level of transparency and oversight not commonly found in traditional Bitcoin investments.

However, they do not come without their inherent risk factors, with theft or loss of the Bitcoin held by the ETF standing at the forefront. As these underlying assets would be stored in a crypto wallet, there is an accompanying risk of security breaches and hacking. Moreover, spot ETFs remain susceptible to Bitcoin's price volatility and fluctuations.

The cryptocurrency market lost over $2 billion in 2022, buoyed by a broader move away from risky assets. It witnessed a drastic resurgence of about 157% in 2023 due to improved investor sentiment, partly fueled by optimism about imminent Bitcoin spot ETFs. This explosive volatility impacted COIN in both directions. After tumbling 86% in 2022, the stock experienced a meteoric rise of over 300% in value in 2023.

While this surge owes some credit to positive trends within the broader cryptocurrency market, it's crucial to acknowledge the significant strides COIN has achieved on its own – independent of influences from Bitcoin or overall crypto-market momentum.

Accompanying a shift in its leadership, COIN’s ambitious business diversification initiative seeks to evolve this crypto exchange into a comprehensive financial platform, valuably equipping it for future challenges and opportunities. Moreover, 2023 saw the company amplify its international expansion ventures.

Notable is COIN's unwavering commitment to regulatory transparency. It has adopted a proactive approach to compliance in every jurisdiction where it operates. Such thorough compliance positions COIN as a compelling prospect for institutional investors, enhancing its appeal as a likely top pick for further institutional investment.

COIN is not merely primed for the inauguration of Spot Bitcoin ETFs; it is all set to redefine the standards of the crypto exchange market. Emboldened with strategic transformations in leadership, significant improvements in systems, and a sharp focus on regulatory advancements, COIN is active in the market and catalyzing its transformations.

This is not a tale of a company gearing for change but one that’s ready to redefine the industry landscape. In this arena, COIN is not just a player, but it could be a game-changer.

COIN anticipates the introduction of spot bitcoin ETFs to add billions to the crypto market capitalization and ignite fresh avenues of asset-class investments. Upon approval, COIN could profit from its significant roles as a crypto custodian and trading associate for the ETF issuers. This development would bolster its standing in the crypto sector, stimulating growth in revenues and market shares. This could attract a more extensive base of customers and partners and enable a wider range of services.

However, COIN's involvement in the spot bitcoin ETF market, though presenting clear potential for profit, does not ensure a seamless path. It could be met with intensified competition from other cryptocurrency platforms and exchanges and face regulatory challenges and operational risks.

The market, with its inherent fluctuation and volatility, might also lead to uncertainty. The value and demand for Bitcoin and other digital assets are subject to factors like supply-demand dynamics, rates of adoption, innovation trends, market sentiment, and regulatory frameworks.

Operating as a custodian of ETFs, among other functions, represents a high-cost, low-profit business. Furthermore, there's a growing trend of companies cutting out the middleman – in this case, exchanges – and establishing direct access channels for their clients and themselves, often providing less expensive alternatives.

In the grand scheme of the crypto ecosystem, no single player has yet secured a dominant passthrough hold. Brokerages armed with more financial resources harbor the incentive to take the solitary route, which could potentially leave COIN in a position where brokerages were at the dawn of the 21st century.

Given the overall scenario, investors could wait for a better entry point in COIN.