Does Coinbase need a new regulatory body after shooting itself in the foot?

The financial regulatory laws drafted in the United States since the 1930s aim to effectively supervise the financial system. However, with technological advancements, the innovation of digital assets and the crypto industry are challenging the existing regulatory framework. Last Thursday, Coinbase proposed a new regulatory framework for the crypto industry, aiming to break free from the old system and establish a new regulatory body, a contrast to its stance in 2018.

Four Major Regulatory Policies

Coinbase's proposal includes the following four major key points, tailored to construct more constructive solutions for the cryptocurrency industry.

1. Regulating Digital Assets under Independent Criteria

Due to the lack of good regulatory rules for digital assets under the current regulatory system, regulatory agencies mostly authorize and regulate these assets in a fragmented manner using existing regulations. With blockchain technology, distributed ledgers, and decentralized applications replacing various intermediaries, establishing new regulatory standards for these emerging technologies is essential to continue advancing financial reform.

2. Assigning Regulatory Agencies to the Digital Assets Market

To avoid different regulatory standards for these emerging technologies, it is necessary to assign a specific federal regulatory agency to the digital assets market. The agency's authority should include at least the following two points:

• Establishing a new registration process for the digital assets market
• Providing appropriate disclosure for digital asset investors

In addition, following the practices of other markets, a dedicated self-regulatory organization should be established to strengthen the regulatory system and provide more detailed supervision of the digital assets market.

3. Protecting and Empowering Digital Asset Holders

Ensure asset holders are adequately protected through the following three points:

• Enhancing transparency of assets through appropriate disclosure requirements
• Preventing fraud and market manipulation
• Improving efficiency and enhancing market resilience

4. Promoting Interoperability and Pursuing Fair Competition

The development of decentralized protocols and innovations in peer-to-peer markets will continue to generate new applications, providing various industries with more financial opportunities. To fully realize the potential of digital assets, the digital assets market must have the ability to interact with cross-domain products and services. Achieving this goal is essential to embody fair competition, responsible innovation, and to further prosper the ecosystem including consumers and developers.

At the end of the article, Coinbase stated that the proposal is still incomplete as the blockchain industry is continuously evolving. However, this proposal has also allowed U.S. regulatory agencies to see the perspectives presented by the regulated party, which may bring about some changes in the decision-making of regulatory agencies. After all, applying outdated laws to today's industries may pose significant challenges for regulatory agencies.

Reversing Its Stance in 2018

In 2018, Coinbase's Chief Legal Officer Mike Lempres stated at a hearing titled "Review of Cryptocurrency and ICO Markets":

We believe that Congress does not need to establish a new regulatory agency or a new regulatory scheme because federal regulatory agencies already have sufficient power to effectively regulate this area.

He believed that the four major regulatory agencies (the U.S. Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Federal Trade Commission, and the Financial Crimes Enforcement Network) should be able to regulate Coinbase based on existing laws, as long as the regulatory agencies coordinate with each other, the issues should not be difficult to resolve.

Now, Coinbase has put forth a new set of regulatory proposals. Although the time and context are different, the market value and technology of the cryptocurrency industry have significantly improved. However, one cannot help but wonder whether it is because Coinbase's own business has been heavily hindered that it strongly denies the existing regulatory system and eagerly seeks to obtain a better development environment through new regulations.