Coinbase Acquires Broker-Dealer in Push to Sell Securities
The cryptocurrency service Coinbase announced on Wednesday it had acquired Keystone Capital Corp, a California-based financial firm, in a move that will clear the path for it to operate as a registered broker-dealer.
The acquisition puts the San Francisco-based company on a firmer regulatory footing with the Securities and Exchange Commission, and positions it to offer both traditional equities and a broader range of blockchain-based securities. Coinbase, which also simultaneously announced that it had acquired Venovate Marketplace and Digital Wealth, did not disclose the purchase price.
While Coinbase is the largest U.S. cryptocurrency exchange, it currently offers only four types of virtual currency, including Bitcoin and Ethereum. The limited selection reflects the company’s cautious approach at a time when the SEC had indicated it regards most digital tokens as securities that must be registered.
Coinbase described the reasons for the acquisition in a blog post published on Wednesday:
Ultimately, we can envision a world where we may even work with regulators to tokenize existing types of securities, bringing to this space the benefits of cryptocurrency-based markets — like 24/7 trading, real-time settlement, and chain-of-title. We believe this will democratize access to capital markets for companies and investors alike, lowering costs for all participants and bringing additional transparency and inclusion to the ecosystem.
The move is significant because it puts Coinbase in a position to sell any tokens registered as a security in the future, and also to offer traditional financial products like stocks to its millions of customers. The acquisition also coincides with a push by Coinbase to expand its professional trading platform, which it recently rebranded as Coinbase Prime, and to offer financial custodial services for institutions.
The broker-dealer status may also offer Coinbase a strategic advantage at a time when several large, well-funded companies, including Circle and Robinhood, are moving to compete for cryptocurrency customers.
Under federal law, companies that buy and sell securities must either register as a national exchange or be covered by an exemption. One of the most common exemptions is for firms to qualify as an Alternative Trading System (ATS), which typically requires registering as a broker-dealer.
By carrying out the acquistion, Coinbase is poised to enjoy the same regulatory status as Keystone Capital. For this to occur, the regulatory authority FINRA must grant its approval, though a person familiar with the deal told Fortune this is likely to be a formality.
Coinbase would not be the first cryptocurrency service to enjoy broker-dealer status. Genesis Global Trading, a subsidiary of crypto baron Barry Silbert’s Digital Currency Group, has had the status since 2015. The Wall Street Journal reported that Coinbase was seeking broker-dealer status in April.
Both Coinbase and Boston-based Circle are also reportedly seeking federal banking charters.