Every day, tech investors and reporters are pitched on new services that intend to generate digital tokens that its creators expect will trade . . . somewhere.
Perhaps unsurprisingly, Coinbase, known currently for trading a handful of the largest cryptocurrencies, wants to be that somewhere. To that end, it’s acquiring securities dealer Keystone Capital, a California-based FINRA-registered broker-dealer that, according to the WSJ, can operate as a registered investment and run an alternative trading system.
Coinbase said the move sets in on path to “offer future services that include crypto securities trading, margin and over-the-counter trading.”
Terms of the deal weren’t disclosed. Coinbase will need regulatory approval to operate under the Keystone licenses, and its COO Asiff Hirji told the WSJ that it expects to take several months after those approvals are obtained to integrate Keystone’s operations.
More than $13 billion has been raised by startups via so-called initial coin offerings since the beginning of last year — a whopping $6.3 billion of that raised in just the first three months of 2018. That represents a huge opportunity for a company like Coinbase, particularly as more startups submit to regulatory oversight and, as a result, produce what are called “security” tokens.” (Startups also sometimes sell “utility” tokens, which are designed to represent future access to a company’s product or service rather than as an investment, though the SEC has repeatedly signaled it’s belief that these tokens are similarly expected by purchasers to rise in value.)
Coinbase, which has so far raised $225 million from investors, isn’t alone in its interest and along with sizable contenders abroad, it’s facing growing competition in the U.S.
Robinhood, for example, the free stock trading app, is also a FINRA-approved broker-dealer that recently began offering cryptocurrency trading; one can imagine it getting into the business of token trading in the not-too-distant future, fueled in part by the $363 million in new funding it disclosed last month that it had raised (at a reported $5.6 billion valuation).
Circle, a trading desk for cryptocurrencies, also has strong financial backing, including $110 million Series E funding that the company announced last month. Like Coinbase, it also has very big ambitions, as evidenced in part when, in February, it acquired Poloniex, one of the world’s most active cryptocurrency exchanges. According to the WSJ, Circle is also currently seeking a banking license.