Coinbase issued a proposal on Thursday for a new crypto regulatory regime that would see the U.S. replace the patchwork of agencies overseeing the industry with a newly-formed single federal regulator.
The call for a single regulator was one of four pillars that Coinbase says should inform the government’s approach to crypto oversight, which were set out in a document titled “Digital Asset Policy Proposal.”
“[The new regulator’s] authority would include a new registration process established for marketplaces for digital assets (MDAs) and appropriate disclosures to inform purchasers of digital assets,” said the document, which also called for the new regulatory regime to include a self-regulating body like those found in other industries.
Coinbase’s proposal comes at a time of unprecedented scrutiny of the crypto industry in Washington, DC and growing exasperation from Coinbase and others at the slow place and complexity that has characterized the crypto regulatory process—a process that has seen federal agencies like the SEC and CFTC squabble over jurisdiction, and a flurry of investigations by state regulators as well.
In a briefing with reporters, Coinbase’s Chief Policy Officer Faryar Shirzad described the existing regulatory regime as a “legacy” one based on an era of paper, and said a new “digital native” regulator was necessary to help U.S. companies and consumers reap the benefit of blockchain technology. He added that Bitcoin and Ethereum should be largely exempt from regulatory activity given how decentralized they have become.
Shirzad also suggested that projects that issue tokens on decentralized exchanges might be outside regulators’ scope, but that these tokens would be subject to oversight if they became available on “marketplaces for digital assets”—Coinbase’s proposed term for centralized crypto companies.
While Coinbase’s call for a new and streamlined regulatory regime is likely to find favor with others in the crypto industry, the proposal is unlikely to gain traction in Washington in the immediate future, and may reflect a degree of wishful thinking on the part of the company.
The creation of a new agency such as the one Coinbase proposes would require an act of Congress, and the support of the White House—a daunting task given the inertia that has prevailed in the Capitol in recent years, and the relatively weak lobbying muscle of the crypto industry.
Meanwhile, it’s unlikely that existing agencies, including the SEC, would be willing to surrender their oversight power and nor is it clear there if there’s an appetite among states for the federal government to pre-empt their current roles in consumer and investor protection.
Coinbase’s call for a new “digital first” regulator is consistent with the worldview of the company’s CEO Brian Armstrong, who has long been frustrated with the ways of Washington. As recounted in Kings of Crypto, a book about the early days of Coinbase, Armstrong concluded a 2018 trip to the Capitol by proposing to the company’s lawyer that the laws governing securities and the SEC should be modernized or replaced.
Shirzad acknowledged that Coinbase faces headwinds in getting the federal government to adopt its proposal, but said it is imperative that political leaders consider designing a crypto regulatory regime from new cloth rather than trying to fit the industry into legal regimes designed in a pre-computer era.
Coinbase’s proposal comes a time after Andreessen Horowitz, the influential venture capital firm that has bet heavily on crypto, unveiled a “web 3 policy hub” intended to help companies and regulators identity the distinct features of the emerging blockchain economy.