The crypto era began 13 years ago with the publication of
seminal paper, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Two years later, the first commercial bitcoin transaction took place when someone bought two pizzas for 10,000 bitcoin, roughly $571 million today. Today, more than $6 billion in bitcoin transactions happen every day and tens of millions of Americans own some form of crypto currency. Crypto can bring millions of people into the economic system through immediate, nondiscriminatory access to services. It adds renewed transparency to our financial system through blockchain technology and challenges undemocratic political regimes, which can seize bank accounts and close businesses. It lets people avoid high currency-exchange fees and barriers to remittance flows.
a platform for accessing the broader cryptoeconomy, has, since its founding in 2012, seen regulation as beneficial. Clear rules of the road allow for technological innovation and investment and give the public and policy makers confidence that these markets are fair. I’ve expressed some frustration with recent actions by regulators. My concern is that entrepreneurs and businesses have little visibility into what regulators expect of us. The positions regulators take often aren’t applied in ways that seem consistent or equitable.
On Oct. 14, Coinbase is publishing online its “Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership.” The document is meant to spark a conversation about regulating crypto—one that isn’t anchored in specific products or enforcement actions, but instead takes a high-level view of the changing financial system and the new technology that underpins it.
This isn’t only about my company. Coinbase arguably benefits from an unclear regulatory environment—it’s a large enough company to absorb the cost, while competitors likely wouldn’t be. Our policy proposal is about enabling more crypto startups, getting the average consumer access to better financial services, and helping America stay at the forefront of innovation, entrepreneurship and technology.
In recent weeks Coinbase has had more than 75 meetings with legislators, other digital-asset companies, crypto innovators and academics, whose feedback informed the suggestions in our document. Among the key points:
First, the government should regulate digital assets under a new framework. Our existing financial regulatory system doesn’t work effectively for the open, decentralized networks that crypto has created. Regulation was built around a series of financial intermediaries—transfer agents, clearing houses and traditional brokers—which don’t play a part in crypto transactions. It’s widely agreed, for example, that it’s difficult to determine whether a digital token is a security. As a result, regulators rely on the so-called Howey test, from a 1946 Supreme Court decision about whether contracts to sell or manage citrus groves in Florida should be considered securities, to answer that question.
Second, responsibility for this new framework should be assigned to a single federal regulator and a new registration process established for marketplaces for digital assets. In the tradition of other markets, a dedicated self-regulatory organization should be established to strengthen the oversight regime and provide more-granular supervision of such marketplaces. Together they can set new rules for everyone. The industry is currently dealing with an impenetrable array of regulators in the U.S.—an impossible patchwork for entrepreneurs and the public that relies on them for protection.
Third, this separate framework should have three goals to ensure holders of digital assets are empowered and protected: 1) Enhance transparency through appropriate disclosure requirements. 2) Protect against fraud and market manipulation. 3) Promote efficiency and strengthen market resiliency. Each of these goals should be accomplished while recognizing that crypto has unique and novel characteristics.
Finally, it’s important to promote interoperability and fair competition. To realize the full potential of digital assets, marketplaces for digital assets must work with products and services across the cryptoeconomy. If fully realized, this can enshrine competition, encourage responsible innovation, and promote a thriving developer ecosystem. No single company, including Coinbase, should be a gatekeeper for this industry.
My company believes its recommendations will help put the country on a path to resolve the most confusing parts of today’s crypto regulatory system and create new protections for the public. Coinbase believes they will also promote innovation and enhance competition—for all market participants. Washington can set a new global standard for enlightened regulation and further the cause of economic freedom.
Mr. Armstrong is CEO and a co-founder of Coinbase.
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