Nasdaq-listed cryptocurrency exchange Coinbase Global Inc (NASDAQ:COIN)’s full-year results were unsurprisingly bad, even if a bit of noise was made over its slight revenue beat on market expectations.
Few companies can spin US$2.6bn in net losses and a 57% year-on-year fall in group revenues positively, even if a cash runway has more than a few years on leeway ahead of it, as Coinbase’s US$4.43bn in the bank suggests.
To that end, it was unsurprising to hear chief executive Brian Armstrong and crew attempt to refocus the conversation forward, not back.
Leading the conversation were anxieties surrounding the crypto regulatory crackdown in the US, which has gone full-steam ahead in 2023.
After Kraken was fined US$30mln under securities law violations earlier this month and ordered to cease operating its staking programme, no ifs, no buts, Coinbase saw a serious threat to its own staking programme.
It’s no small change for Coinbase; listed as ‘blockchain rewards’ in the earnings report, staking services contributed to 8.7% of total revenues for the 2022 financial year.
Armstrong was quick to defend its staking programme following the Kraken fine, stating that Coinbase’s skating services “are not securities” and promising pushback through the courts should the regulators come after his company’s bottom line.
Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023
Coinabse reiterated its stance in the earnings report’s opening remarks: “We do not believe we have violated any securities laws, Coinbase staking products are not securities, USD Coin (USDC) is not a security. The list goes on.”
Beyond the blunt messaging, one question has yet to be fully elucidated: Why isn’t Coinbase’s staking programme a security contract?
During the shareholding call, one investor took Armstrong’s contention to task, asking what differentiates Coinbase’s staking offering from Kraken’s.
Chief legal officer Paul Grewal highlighted the fact that “at all times”, customers retain the title to, and ownership of their tokens
Furthermore, “our fees are tethered to realities”, said Grewal.
It was a pertinent statement to make, given the often ludicrous and unsustainable yields that some of Coinbase’s competitors offer.
“We do not operate as a market maker that trades against our customers, and we do not issue exchange tokens,” he added.
Is this enough to convince the regulators?
The wolves haven’t been breathing down Coinbase’s doors yet, but Armstrong and Co. are clearly in defence mode.