July 15th, 2018
Coinbase has been making big moves: They were recently approved by the SEC to acquire three companies that deal with securities trading (setting the stage for Coinbase to trade security tokens). They also recently announced that they are looking at adding 5 new coins to their platform; Cardano (ADA), Basic Attention Token (BAT), Stellar Lumens (XLM), Zcash (ZEC), and 0x (ZRX). This would more than double the number of tokens/currencies currently available to purchase (Coinbase, like BitBuy, currently lets you buy Bitcoin, Ethereum, Bitcoin Cash, and Litecoin).
These announcements have contributed to the price of bitcoin rising 15%, and bitcoin cash rising 23%, over the last week,
We recently reported on the SEC (Securities and Exchange Commission) ruling that Bitcoin and Ethereum are not securities. Avoiding the classification as a security keeps exchanges, platforms, and consumers from needing to comply with a number of regulations. “Securities” – financial instruments like company shares, bonds, etc., – require regular reporting from the managing company, and investors to meet certain qualifications.
As only Bitcoin and Ethereum were given the nod that they would not be regarded as securities, speculation immediately went to other coins. Would Litecoin, Bitcoin Cash, Ethereum Classic, and others soon receive the same good news? Were some of these other coins in danger of being ruled a security? Would that be disastrous for the community and the token prices?
It seems Coinbase has taken massive steps toward trading cryptocurrency securities, by acquiring three businesses involved in securities trading. The SEC has approved Coinbase’s acquisition of these companies, which should allow Coinbase to list cryptocurrencies that are deemed securities (aka security tokens).
Acquisition talks started to gain attention in June, with CNBC and others reporting the story:
“If approved, Coinbase will soon be capable of offering blockchain-based securities, under the oversight of the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA),” Coinbase President and Chief Operating Officer Asiff Hirji said in a statement. “This step forward is being made possible by our acquisition of a broker-dealer license.”
Now that three acquisitions have been approved by the SEC, here’s what we know about each company. I also have a guess at how each company might fight in to Coinbase’s overall picture.
Keystone Capital Corporation (KCC) is a “broker dealer trading equities, options & digital securities.” They appear to have their own proprietary trading platform, and tout their abilities to create custom solutions to fit their clients’ portfolio needs. Coinbase has yet to give any indication of how each team will be used within Coinbase, but my bet is that this acquisition is largely for their broker license. Beyond that, I could see: 1) Coinbase deploying Keystone’s trading software, 2) releasing KCC’s software/ algorithms to let customers manage their own portfolios with automatic buys and rebalancing, or 3) this being just a straight acqui-hire of a good team. In reality, it may be a combination – a broker license, with a good team, and a functional trading platform that they can re-build at Coinbase, or scale up to reach the millions of customers that will now use it.
Venovate Marketplace “matches sophisticated investors and their advisors with issuers raising capital for a broad range of alternative assets.” From my limited understanding, it seems to be a place that helps investors filter from a number of investment opportunities, and read all the critical documents and filings to help them evaluate investment opportunities. For those looking to raise money, they can upload all these documents, and be presented directly to investors. For any security to be sold to an investor, a handful of documents must be made available so that informed decisions can be made and there are limited opportunities for informational arbitrage. I believe that Venovate will be incorporated into Coinbase for its ability to put these documents in front of investors, perform due diligence, and sign off on documents electronically.
Digital Wealth has more of a portfolio advisor product. They are “using technology to help you keep track of every financial and investment aspect of your life so that you can reach your goals and live the life you want.” Whereas it seems that Keystone has built some tools around custom portfolio solutions (or maybe those tools are just brokers on the phone), that seems to be Digital Wealth’s core competency. As Coinbase potentially scales up from 4 to 9 coins on offer, they will need to do a better job of informing customers on each coins and their risk profiles. Digital Wealth being acquired to build a robo-advisor product inside Coinbase is the most likely path I see.
As Coinbase is a dominant player in the digital currency world, if they add new coins or begin to allow security tokens to be traded, we may quickly see many other platforms follow their lead. We’ll be sure to provide Bitbuy’s readers and newsletter subscribers with information on new coins as they become mainstream.
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