Regulatory restrictions, internal fire: Coinbase's "troubled times"

The American Thanksgiving holiday is here, but Coinbase is not happy at all.

On November 26, Coinbase closed margin trading under the latest guidance of the U.S. Commodity Futures Trading Commission (CFTC).

In addition, the New York Times will publish a negative report about Coinbase this weekend.

Coinbase seems to be facing a "tumultuous period".

Regulatory restrictions on Coinbase

On November 25, Coinbase blogged: In response to the new guidance from the CFTC, we will close our margin trading products. Margin trading will stop at 6:00 a.m. Beijing time on November 26.

“This is a huge blow to the U.S. crypto industry and has the potential to impact prices because it will drain a lot of money away,” said Adam Cochran, partner at Metacartel Ventures.

At the same time, the U.S. Treasury Department plans to introduce new regulations that will require financial institutions like Coinbase to collect information about recipients/owners of non-custodial wallets, verify their identities, and then send withdrawals to non-custodial wallets.

In this regard, Coinbase CEO Brian Armstrong bluntly stated: "If this cryptocurrency regulation is introduced, it will be a terrible legacy and will have a long-term negative impact on the United States."

Brian Armstrong posted a long text on Twitter explaining the difficulty of implementing this regulation.

First, smart contracts are not necessarily held by identifiable individuals or companies. This is a new type of recipient that does not have any direct counterpart in traditional financial services.

Second, it is difficult or impossible to collect meaningful “know your customer” information in emerging markets, where some people live in poverty and may not have any permanent address or government identification.

Finally, many recipients (in the U.S. or abroad) who value their financial privacy may simply not want to upload more identification documents to various companies.

If the regulations are truly implemented, Coinbase and its users will be impacted. If Coinbase wants to operate its business smoothly in the United States, it must comply with the new regulations of the U.S. Treasury Department. However, the consequence of this regulation is that transactions from crypto financial institutions to non-custodial wallets may decrease. If users want to conduct transactions, they will inevitably turn to unregulated crypto service companies outside the United States, which is extremely unfavorable to the U.S. crypto industry ecosystem.

Coinbase is well aware of this and has joined forces with a number of US crypto companies and investors to write to the US Treasury Department to express their concerns. The specific situation is still unknown, but it is foreseeable that this is another game between the US crypto industry and regulators.

However, the regulations may not be passed because the term of this Treasury Department is about to end. As Adam Cochran mentioned in his comment, "Hail Mary". This term comes from football and refers to a long pass to the opponent's end zone, which usually occurs in the final stage of the game. The US Treasury Department and Secretary Mnuchin are eager to use the last time to strengthen the control of the crypto industry. If the regulations fail to "reach the target" in the end, then US crypto financial institutions such as Coinbase are likely to "escape."

Fire breaks out in Coinbase courtyard

Just a few hours after Brian Armstrong published his long article, Coinbase blog revealed more negative news.

The Coinbase blog post stated: The New York Times plans to publish a negative report about Coinbase in the next few days, and the report is expected to be published on Sunday.

Coinbase said in the article that it has noticed the report from the New York Times, and that New York Times reporter Nathaniel Popper has been contacting current and former employees in the past few weeks.

At the same time, Coinbase pointed out that it has completed the investigation into the allegations in the article. The statement said: The article may claim that some black employees and contractors have filed complaints with the company, but only three of them filed complaints while working at Coinbase.

All allegations were thoroughly investigated, one internally and two by independent third-party investigators, all of whom found no evidence of wrongdoing and ultimately concluded that the allegations were not substantiated.

It is worth noting that the New York Times reporter has extended the tentacles of the investigation to Coinbase employees. These employees are aware of the current operating conditions of Coinbase and will provide the latest internal situation of Coinbase to reporters during the communication process, which may contain personal emotions.

In the style of the New York Times' independent investigation, the reporter may have obtained some information that Coinbase has not made public.

In addition, the article will mention black employees. After the vigorous "Black Lives Matter" movement, the social sentiment generated by reports on this group is also an unknown factor.

Regardless of what accusations the New York Times will eventually publish against Coinbase, it is a foregone conclusion that these accusations will be made public. The New York Times has a global influence that is self-evident, and the negative news it publishes will undoubtedly deal a heavy blow to Coinbase.

Although it is not clear who the former employee who provided the information to the New York Times reporter is, the accusation made by the former employee cannot help but remind people of the "wave of resignations" at Coinbase from September to October.

Coinbase informed employees in late September that anyone unhappy with the company’s stated “apolitical” mission could leave with a generous exit package.

In a blog post written by Brian Armstrong, it was mentioned that as of October 8, 60 employees had chosen to leave Coinbase, accounting for about 5% of the total number of employees who left.

5% of employees leaving in a short period of time is not a small proportion for a company, and these employees may take away some negative evidence of Coinbase when they leave.

Among the disgruntled employees is Dan Yoo, Coinbase’s vice president of business and data, who announced his departure from Coinbase on Oct. 10.

However, Brian Armstrong was not worried that employee departures would have an adverse impact on Coinbase at the time.

He said: I am proud of the number of crypto startups founded by former Coinbase employees. We even funded them through Coinbase Ventures. More and more crypto startups mean that we are getting closer to building a crypto economy, even if these startups are competitors to Coinbase.

It is still unknown when the sword of Damocles of the US regulator will fall, and it is also unknown how the former employees will evaluate Coinbase in interviews. After the Thanksgiving holiday, Coinbase still has many problems waiting for the management to deal with.