I will admit, I am far too idealistic. It’s not realistic to expect a company to ignore regulation within their industry. It’s not realistic to expect perfect availability, openness, freedom or anonymity from a Bitcoin exchange. In reality, our government is to blame for creating the insane compliance landscape Coinbase must conform to – but the ideologue in my head will have none of that. Why? Because there’s also a second pattern at play here that’s becoming all too common from Coinbase.
Today’s big news from Coinbase is the launch of a fully regulated U.S. Bitcoin exchange. Prices soared with the announcement… and then immediately tumbled when the thing actually opened. Why the tumble? Well, it might have something to do with the fact that more than half of the country can’t actually use it.
It’s been a while since this was news, but some of you may remember that back in October of 2013 Coinbase made a change that many of us weren’t happy with. They added a stringent Visa-only no-debit-allowed credit card requirement to their most popular feature: Instant Buy. At the time, I complained that this excluded about 70% of the U.S. population (including me) from participating in that program. Now they’re repeating their past PR mistakes by excluding another massive set of potential customers.
The problem, it turns out, is in that whole “regulated” bit. In order to run a regulated exchange, you can only do business in states where you carry one or more licenses, which vary by state. This makes compliance a nightmare and the end result is that only 24 states ended up on Coinbase’s “supported” list. This is where I find fault with Coinbase: It’s not that they complied with necessary requirements, it’s that they chose to launch having only secured 24 states worth of licenses.
Worse still, they seem to have cherry-picked their licensed states quite poorly. There are several highly-populous states not supported, including the 2nd and 3rd most populous states (Texas & Florida) – and, as my luck typically runs, my own home state of Nevada. The final tally shows that nearly 165 million (more than half) of this country’s ~322 million citizens live in an unsupported state.
Despite the annoying pattern that I’m always on the wrong side of, I’m trying really hard not to lay the blame for this entirely on Coinbase. They launched too early, sure, but rules are rules. They’re just trying to be safe and smart and in today’s landscape that means compliance. It’s a difficult regulatory environment, far flung from Bitcoin’s early “wild west” days when the only limitations were the technical ones. Having lived and worked in that environment, the idea of excluding half your userbase because of their geographic origin is just plain idiotic – a move no one would make unless forced.
I try very hard not to get too political here. I have leanings, but I’d rather focus on the tech. That said, I’m not sure I can sit idly by on this one. Whatever your views on regulation, it is clearly a harmful force in this context. Even if there is a happy medium, this isn’t it. If the regulatory landscape is such that eliminating 50% of all potential customers is the “smart move” then clearly that landscape is fundamentally flawed.
The good news is that this kind of regulation can only be enforced at the edge of the network. If you have a need to sell Bitcoins for your local currency or vice versa, the operators of that currency get to apply their arbitrary nonsense rules. Stop playing their game on their field and it suddenly becomes very difficult to enforce their rules.
Want to stop the madness? Put less focus on exchanges and ETFs and more focus on “closing the loop.” The day your finances are 100% in Bitcoin is the day the “authorities” lose control of them.
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