Altcoins
Coinbase praises judge’s ‘digging’ as high-stakes SEC trial gets underway – DL News
- Coinbase and the Securities Exchange Commission are facing off in court today.
- The lawsuit presents high stakes for Coinbase’s business — and for the SEC’s claims to authority over crypto.
- This comes at a time when Coinbase is facing existential threats from traditional finance giants.
Coinbase will argue in court today that the powerful U.S. securities regulator does not have the authority to assert that the exchange facilitated trading in unregistered securities.
The preliminary hearing in New York’s Southern District Court sets the stage for what could become a lengthy legal battle with the Securities and Exchange Commission — and worsen Coinbase’s financial woes.
If the SEC emerges victorious in this legal battle, analysts say it could wipe nearly a third of Coinbase’s revenue off its books, at a time when the exchange faces competition from newly launched Bitcoin exchange-traded funds .
“Haltcoins” hit revenues
If the SEC wins, Coinbase could be forced to shut down or register parts of its business – including its staking service – and delist the tokens.
Revenue from staking services represents 11% of Coinbase’s revenue in the third quarter of 2023, Mizuho analysts estimate.
It is difficult to measure the exact impact of staking services on Coinbase’s bottom line, as the company includes staking rewards owed to customers in its quarterly results under the heading “blockchain rewards.”
On that basis, net staking income was actually closer to 3%, a person familiar with the matter said. DL News.
Trading in altcoins – assets other than Bitcoin, Ethereum and Tether – accounted for 20% of the crypto exchange’s revenue during the same period.
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In a report from investment bank Mizuho released following the lawsuit, analysts said the SEC complaint could turn these major revenue drivers from altcoins into “haltcoins.”
Coinbase could face additional headwinds if these cryptocurrencies are declared unregistered securities.
“The cumbersome process and risk of token request denials may hinder Coinbase’s ability to generate transaction revenue,” Mizuho said.
Although altcoin activity on Coinbase has declined in 2023, they remain an important revenue generator for the exchange.
In the third quarter, altcoin trading volumes decreased to 28%, down from 38% seen in the previous quarter. However, the proportion of trading revenue attributed to altcoins has actually increased.
Lesser-known cryptocurrencies accounted for 46% of transaction revenue, up from 39% in the second quarter, according to the quarterly report. deposits.
Besides Bitcoin and Ethereum, Coinbase lists a wide range of cryptocurrencies with much lower market caps.
The ability to trade them is a key attraction for retail investors when choosing Coinbase, Coyne. said DL News in June. Without these assets, he said, Bitcoin and Ethereum volumes could also fall.
Coinbase could face a “painful reality check” in the coming quarters, Mizuho said in a report last week.
Legal battle
Today, the exchange and the regulator each have two hours to present their case before Judge Katherine Polk Failla of the Southern District Court of New York.
A source close to the company said DL News that Coinbase is not optimistic that Failla will dismiss the lawsuit, at least in its entirety.
Still, they are encouraged that Failla has set aside so much time for this hearing.
“The judge takes these issues seriously, she digs into the details, and that’s good news,” they said.
The SEC filed suit against Coinbase in June for violating securities laws.
Coinbase responded by filing a motion to dismiss the suit, arguing that none of the tokens it lists are securities and that the regulator is overstepping its authority.
This is what Failla will evaluate today.
If Failla decides not to dismiss the complaint, the case will proceed to a jury trial. This will embroil both parties in litigation for months or even years.
Coinbase General Counsel Paul Grewal told the Wall Street Journal earlier this week, it was prepared to engage in a protracted legal battle with the regulator, which could stretch into 2025.
Him, with the CEO Brian Armstrongembarked on a very public campaign to defend the company.
Both said that despite their diligent efforts to comply with regulatory standards, they were criticized by the lawsuit.
New competition
Coinbase has other concerns, however.
The approval of Bitcoin spot exchange-traded funds in the United States poses another difficult question for the exchange.
Although eight of the ETF providers – including asset management giant BlackRock – have chosen Coinbase as their custodial partner, the benefit “may be more discreet than previously thought,” Mizuho said.
Coinbase will likely see only a 1-2% profit on revenue from custodial fees and 5-10% total revenue growth if the newly launched ETFs drive additional Bitcoin spot trading, the bank estimates. ‘investment.
“Additionally, deeper cannibalization of high-margin Bitcoin spot trading and/or stock losses for brokers offering an ETF could offset future benefits,” Mizuho said.
Coinbase pricing structure for retail users submitted meticulous examination in the past, with fees for simple retail transactions as high as 2.5%.
Competition is now heating up with Bitcoin ETFs charging fees of around 0.19% to 0.30% – while some were initially launched with no fees as a fee war broke out between issuers.
Custody fees could also decline over time, said Nate Geraci, president of financial consulting firm ETFStore.
“Issuers will likely negotiate down already low custodial fees and ETFs will siphon trading out of stock markets,” Geraci wrote on X.
Want to give your opinion on crypto regulations? Send us an email at joanna@dlnews.com And adam@dlnews.com