crypto strategy

Coinbase fined millions for Dutch delay, CEO Armstrong loses faith in ETH?

Coinbase (NASDAQ: PIECE OF MONEY) was fined more than 3 million euros ($3.3 million) for delay in seeking a Dutch license, while the CEO Brian Armstronggot rid of his Ethereum skin raises questions about his motives.

On January 18, Dutch central bankers De Nederlandsche Bank (DNB) imposed an administrative fine of €3,325,000 ($3,615,857) on Coinbase Europe Limited for “providing crypto services in the Netherlands in the past without registration with DNB, which is not in accordance with the law.”

The Dutch Anti-Money Laundering and Anti-Terrorist Financing Act requires that “crypto” companies wishing to offer products and services to local residents first obtain approval from the DNB. This requirement was instituted in May 2020 due to the crypto industry’s perceived high risk of being involved in activities that the Dutch government frowns upon.

DNB claims Coinbase was non-compliant from November 15, 2020 until “at least” August 24, 2022, when DNB’s investigation ended (Coinbase was granted registration on September 22, 2022). This “very serious” non-compliance gave Coinbase “a competitive advantage” over its compliant competitors, as it was not required to pay monitoring fees or other costs associated with monitoring DNB.

The net result of this non-compliance is that “a large number of unusual transactions may have gone unnoticed by investigating authorities.” Coinbase’s fine would have been even higher, but DNB applied a 5% discount because the swap said he “always intended to get the recording” (they just didn’t get it for a few years).

Coinbase has until March 2 to object to the fine, but the company has already indicated that it believes the fine is unfair, given the time it took for the exchange to obtain Dutch registration. . Coinbase also pointed out that the DNB judgment found “no criticism of our actual services” except, you know, complete ignorance of the law.

The amount of Coinbase’s fine – not far from the maximum of 4 million euros (4.3 million dollars) – is equal to the fine of the DNB imposed on Binance last July. Binance’s sanction came after the controversial exchange ignored public warnings from DNB that it was “illegally offering virtual and fiat currency exchange services”. To be fair, illegally offering services is essentially Binance’s business modelbut the rules are the rules.

Own goal in 3… 2… 1…

Coinbase has prioritized international expansion as his misfortunes in the United States keep going up. Last November, shortly after belatedly gaining registration in the Netherlands, Coinbase announced four leadership appointments to bolster its business in Europe, the Middle East, and Africa (EMEA).

These new recruits included former Bittrex Chief Compliance Officer Michael Schroeder as Coinbase’s new Director of Controls for Germany. It might seem strange that Coinbase would turn to Bittrex for compliance lessons, given that the month before Schroeder’s appointment, Bittrex was a fine of $29.3 million for “historic shortcomings related to Bittrex’s sanctions compliance procedures”.

The same month that Coinbase announced its new European recruits, the exchange was publicly reprimanded by the German financial regulator BaFin. Although BaFin did not go into detail, it asked Coinbase to “ensure proper business organization” after an audit revealed “organizational deficiencies” at the exchange.

Anyway, German soccer stalwarts Borussia Dortmund (BVB) this week announced Coinbase as their new premium partner. Terms of the deal were not disclosed, but Coinbase will now benefit from perimeter advertising at the club’s Signal Iduna Park, as well as a presence on digital adverts and through BVB’s social media channels.

Share(s) the wealth

Coinbase will release its fourth quarter/fiscal year 2022 financial report on Feb. 21, but investors have already been warned to expect additional losses on top of the $2.1 billion in red ink the company bled in the first nine months of 2022. Still, the latest round of downsizing could allow CEO Armstrong to assure investors that there are better and more profitable days ahead.

But if Armstrong really believes in the future of his company, he doesn’t necessarily show it. Armstrong sold an additional $4.5 million worth of Coinbase stock on January 18, bringing its total sales in 2023 to $5.1 million. Coinbase CFO Alesia Haas was a close second with total sales of $3.4 million this month.

The only Coinbase insider to make shares shopping six months is Shopify Founder/CEO Tobias Lütke, who joined Coinbase’s board a year ago. Armstrong said Lütke was hired at the time because of his “wide variety of skills and expertise,” but we’re beginning to suspect his primary role was exit liquidity for other Coinbase administrators.

Consider Surojit Chatterjee, the chief product officer who joined Coinbase in February 2020. Chatterjee signed a five-year contract, but last October the company announced he would step down early based on a “mutually agreed” decision. “. Chatterjee will officially cut its Coinbase cord on February 3.

Chatterjee hasn’t sold any Coinbase shares in over a year, but his separation agreement requests that more than 249,000 shares of unvested stock options be eligible for vesting, provided he continues to serve as an “advisor” until the end of this year. But it’s unclear how much Chatterjee’s advice is really worth.

Recall that Chatterjee pointed to the horribly inept deployment of Coinbase’s NFT marketplace last year. At the end of 2022, Coinbase NFT had just made $7.2 million in total sales volume$1 million less than the market leader OpenSea done in one day in December. Coinbase seemed almost relieved when Apple’s App Store commissions “forced” the exchange to remove NFT functionality from their iOS app.

No matter how much this debacle played into Chatterjee’s exit, DL News reported that the shares he sold following the company’s Nasdaq listing in April 2021 earned him a total salary of $105 million. Its stock options were valued at less than $19 and Coinbase’s stock price soared above $342 after its Nasdaq debut before dropping to $32 earlier this month.

Coinbase’s stock has since rebounded above $50, in part due to this month’s unwarranted price surge. BTC and other functionless tokens. But the gains also owe much to the very public collapse of its rival FTXthan Coinbase sought to capitalize on by running a full-page ad in the New York Times trumpeting its “transparent accounting and auditing.”

But a new analysis of Mizuho shows that, of Coinbase retail users who did not transact in December, 89% had not yet transacted in January. Mizuho’s Dan Dolev said there was “no retail appetite for crypto trading” among retail Coinbase users. With higher-margin retail accounting for 83% of Coinbase’s revenue in 2021 (2022 numbers are not yet known, remember), Mizuho reiterated his “underperforming” rating and priced $30 for Coinbase shares.

Armstrong reborn as BTC maxi or SEC supplicant?

Armstrong raised eyebrows this month when he removed the “barmstrong.eth” appendix from his Twitter profile. The change was strange, given that after the Ethereum blockchain makes his transition a consensus mechanism based on proof of work to one based on proof of stake last year, Coinbase said it was betting big on ETH staking to help reverse his sagging tax fortunes.

Some observers have used Armstrong’s unexplained change to argue that Armstrong is return to one’s roots as an outspoken supporter of BTC and a supposed enemy of “altcoins” such as Ripple (XRP). Armstrong eventually deleted these 2015-era pro-BTC/anti-altcoin tweets, and Coinbase embarked on a dubious strategy of listing all possible useless altcoins.

Revenue from transaction fees on these new token exchanges has proven irresistible, despite the inevitable insider trading that have resulted, including a former Coinbase product manager currently facing criminal and civil proceedings to participate in the insider fun.

The exposure of such insider trading prompted the United States Securities and Exchange Commission (SEC) to investigate Coinbase for selling unregistered securities— a definition that applies to all tokens that featured a pre-mine phase. Including, um, Ethereum.

Exactly what prompted Armstrong’s ETH exorcism remains to be seen, but fear of boring the SEC would seem low on the list. Coinbase has traditionally taken an adversarial, often juvenile, approach in its public responses to SEC guidelines (or, for that matter, to nine-figure fines imposed by state regulators).

Could it be that some adults have (finally) walked into Coinbase’s C-suites to inform them that shouting “you’re not my boss” isn’t generally considered an acceptable legal strategy, especially when your whole model trading depends on selling unregistered securities?

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