Chesnot | Getty Images News | Getty Images
Cryptocurrency exchange Coinbase has chosen Ireland as its main operational and regulatory center in the European Union, the company told CNBC in an exclusive interview.
Coinbase has submitted its license application under the new EU Markets in Crypto-Asset Regulation (MiCA), which is expected to come into force by December 2024, to the Central Bank of Ireland.
Coinbase has had an office in Dublin since 2018. The company employs around 100 people in Ireland.
If and when approved, Coinbase will have a universal “MiCA license” in Ireland, which it can then use to “passport” its services in Germany, France, Italy, the Netherlands and other countries. EU countries.
This makes it easier for Coinbase to launch new products in these markets without having to apply for individual licenses in each country. Coinbase says it is confident of being able to win this license.
The company plans to be up and running with its MiCA license from “day one,” Nana Murugesan, Coinbase’s vice president of international, told CNBC in an interview earlier this week.
What is MiCA?
MiCA is the EU’s attempt to introduce a pan-European regulatory framework for crypto companies. It seeks to introduce protections for investors buying and selling crypto assets, like Bitcoin and Ethereum.
The rules will allow crypto companies to use a single license in one country to operate in all 27 EU member states.
The regulations impose a number of requirements on crypto companies, particularly exchanges, including the requirement not to commingle customer funds with their own assets.
“As soon as MiCA was passed, and even before that, we considered a number of member states,” Murugesan said. “It has been a long decision-making process and we have been very impressed with Ireland’s commitment throughout the process.”
“It was really important for us to choose a member state that is not only a sophisticated regulator with significant experience in regulating financial services, but also recognizes the importance of a globally integrated business model, the way we are structured as a company, and which also recognizes the potential of this innovative new technology.
Currently, Coinbase has an electronic money institution license and virtual asset service provider registration in Ireland; a crypto license in Germany; and national registrations in other EU member states, including Italy, the Netherlands and Spain.
The company, headquartered in San Francisco, is one of the largest crypto trading platforms in the world.
This expansion move comes at a difficult time for the crypto industry. Crypto companies have seen volumes decline, while fundraising has slowed, as macroeconomic conditions have become more challenging and regulatory scrutiny has increased.
Coinbase is banking on growth in the European Union, a continent with a total population of 450 million, and other international hubs as it faces regulatory pressure at home, including from the United States Securities and Exchange Commission, which accused the company of operating an illegal securities trading venue.
Coinbase disputes the SEC’s claims and is fighting this case. However, its goal is to have formal crypto legislation, rather than constant litigation in court.
Paul Grewal, Coinbase’s chief legal officer, said progress has been “slower” than he would like when it comes to crypto regulation in the United States. But he hopes for greater regulatory clarity in the future.
“We are now seeing in court cases real questions being asked about the U.S. approach to cryptocurrency regulation and particularly securities regulation,” he said. “Judge after judge is asking serious questions about the SEC’s interpretation of our U.S. securities laws and, frankly, calling into question some of the fundamental points that the SEC has insisted on regarding whether the tokens are securities.”
“MiCA, on the other hand, I think offers…a more substantive and more serious approach to crypto regulation in that it’s not caught up in the jurisdictional struggles, the turf battles that we have in the United States to find out whether particular transactions or securities transactions or commodity transactions. Instead, the focus is on the safety of consumers and investors.
As a crypto market, the use of digital assets is less widespread than in the United States. According to data from Chainalysis, Central, Northern and Western Europe is the second largest crypto economy in the world, behind North America. However, Coinbase expects strong growth in the region.
“In the last few quarters, Coinbase has made up to 15%, even 20% of the revenue of all of Europe,” Grewal told CNBC’s Arjun Kharpal – the company reported $808.3 million of sales worldwide in the second quarter of 2023, according to its latest earnings report.
“But for us, we are going to approach this opportunity in a responsible and measured way, we are going to let our clients drive our investments and focus on the opportunities at hand. It is an exciting future.”
Coinbase has also decided to make Germany its regional “talent hub” and will look to intensify its recruitment in this market to localize and tailor its product specifically for Germany.
“We are very grateful to Germany for all the support they have given us,” Murugesan told CNBC. “Our German business has continued to grow and its workforce has more than doubled.”
A European approach to products
Coinbase might even consider launching new products in Europe before rolling them out in the United States, Murugesan said.
The EU will be a “test bed” for Coinbase to think about “utility” functions of crypto that people need in their daily lives, such as payments and transactions rather than commerce, he said at CNBC.
“With MiCA and the clarity it provides, it allows us to innovate,” he added. “And I hope we see some of these everyday use cases rolling out in the EU first.”
Daniel Seifert, vice president EMEA at Coinbase, said the company is also considering launching integrations with other payment providers to make it easier for users to access digital tokens through Coinbase.
“There are a lot of exciting projects for the region that we’re going to see in the coming weeks and months,” Seifert said.
— CNBC’s Arjun Kharpal contributed to this report