The crypto industry has taken some hits since the beginning of 2018, with Bitcoin’s price dropping over 60% earlier this year and initial coin offerings (ICOs) experiencing slowing activity. This is likely making some crypto exchanges nervous and pushing them to diversify their products to ensure customer satisfaction, as well as to generate revenue.
Two US-based crypto exchanges are taking different approaches to rolling out more products:
- Coinbase has acquired securities dealer Keystone Capital. As a registered broker-dealer, Keystone can operate as a registered investment adviser and offer alternative trading systems. This move will allow Coinbase to offer products tied to stocks or other securities in the future, including digital tokens that are under the oversight of the Securities and Exchange Commission (SEC). Many crypto exchanges have been reluctant to offer these tokens, but Keystone’s license should serve to eliminate any potential compliance issues. Coinbase will then be able to offer a larger set of cryptocurrencies to its customers, which will likely enhance their user experience. Coinbase still needs regulatory approval to use Keystone’s license, but it’s confident that it will be granted approval in the next few months.
- Circle has opted to apply for a banking license. Fintech unicorn Circle has plans to apply for a federal banking license, which would allow it to offer more services to its customers. This move would make Circle less dependent on conventional lenders and allow it hold deposits for customers. Additionally, it wants to become registered as a brokerage and trading venue under the SEC to enable investors to buy and sell tokens that are classified as securities by the regulator. Similarly to Coinbase, this would enable Circle to introduce more cryptocurrencies on its exchange, but acquiring its own license may take a bit longer.
These moves should help the crypto exchanges remain relevant in an increasingly difficult space. With cryptocurrencies failing to remain at the highs they saw at the end of 2017, many investors are likely a bit more wary when it comes to the assets. Therefore, rolling out more services and supporting a larger variety of cryptocurrencies is likely wise of these companies.
However, Coinbase’s approach may prove the path of least resistance, as leveraging Keystone’s license is likely to be far easier than applying to become a registered brokerage. It also remains to be seen whether Circle will be granted a banking license, as none have been given out to fintech players so far, and regulators will probably be even more skeptical of crypto companies.