SEC’s “hostile regulatory environment” benefits Coinbase

Bitwise Chief Investment Officer Matt Hougan believes the recent regulatory scrutiny could play a role in Coinbase's favor and benefit the company vis-à-vis the SEC.

The US SEC recently issued a notice from Wells to Robinhood crypto, indicating possible enforcement action for securities violations. According to Hougan, this regulatory scrutiny is playing a major role in shaping the competitive landscape among crypto exchanges, particularly benefiting Coinbase.

In a post on social media platform x, Hougan argued that the strict regulatory environment inadvertently creates a competitive advantage for Coinbase by establishing an artificial moat around its operations. This advantage allows Coinbase to maintain high profit margins and achieve substantial profits in the short term.

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revenue of $1.6 billion for the first quarter of 2024, driven by increased transaction fees from institutional and consumer clients. The company's financial success comes amid broader regulatory actions, including last year's lawsuit against Coinbase by the SEC, which accused the company of operating as an unregistered exchange, broker and clearing agency. The regulator has also criticized Coinbase's betting and wallet services.

Robinhood crypto, a direct competitor, facilitates trading of several cryptocurrencies, including bitcoin (btc), Ether (eth), Dogecoin (DOGE), and Shiba Inu (SHIB). Other entities have encountered similar regulatory challenges in the crypto space, such as decentralized crypto exchange Uniswap and ethereum development studio Consensys, which received Wells notices from the SEC last month.

Hougan highlighted that despite the regulatory hurdles, Coinbase is using this period to shore up its finances and diversify its operations.

“What's impressive is that they are taking this opportunity to raise cash and greatly diversify their business,” he said.

Bitwise, the company that Hougan represents, has also been active in the cryptocurrency market, being the custodian of eight of the nine bitcoin spot ETFs traded since January 2024.