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U.S. crypto exchanges compete to create brokerages for crypto securities
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U.S. crypto exchanges compete to create brokerages for crypto securities

Two titans of U.S. cryptocurrency trading are in a race to build the nation’s first regulated venues for tokens deemed to be securities, potentially appeasing watchdogs threatening to rein in the multibillion-dollar market.

Coinbase Inc., one of the largest cryptocurrency exchanges, said Wednesday that it’s buying a trio of firms including a broker-dealer registered with the Financial Industry Regulatory Authority. If U.S. regulators approve, Coinbase will use licenses it obtains to offer customers blockchain-based securities. It will also be subject to more federal oversight.

The announcement came hours after Bloomberg reported that Circle Internet Financial Ltd., one of the world’s most valuable cryptocurrency platforms, intends to pursue registration as a brokerage and trading venue with the U.S. Securities and Exchange Commission so it can help investors buy and sell tokens deemed to be securities. Circle also plans to seek a federal banking license to provide more services to customers.

Regulated trading platforms could eventually handle billions of dollars in tokens sold by companies in initial coin offerings. Despite a crackdown by the U.S., China, and other countries, companies have already raised more than $9 billion through ICOs in 2018, more than double what they did all of last year, according to market tracker CoinSchedule. The SEC has said most of the coins are securities, which means issuers must register and comply with federal laws — as do platforms that handle trading.

Coinbase agreed to buy a firm that owns Cardiff, Calif.-based broker-dealer Keystone Capital Corp., Venovate Marketplace, Inc., and Digital Wealth LLC. Acquiring that trio would give the exchange licenses to operate as a broker-dealer, an alternative trading system, and a registered investment adviser. Alternative trading systems operate outside traditional public stock exchanges.

“This is an important moment for the crypto ecosystem, and yet another indication of the maturation of the crypto economy,” Coinbase said in a statement that didn’t include terms. The moves “will set Coinbase on a path to offer future services that include crypto securities trading, margin and over-the-counter trading.”

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