Coinbase, the largest US cryptocurrency exchange, has amassed a $4 billion war fund in anticipation of lower crypto retail trading volumes and greater operational expenses due to regulatory barriers.
It apparently intends to utilise the funds to offset expenditures incurred as a result of a range of circumstances, including complying with new laws enacted by the United States legislature.
Alesia Haas, Coinbase’s CFO, told the Wall Street Journal that no single threat to the exchange or the industry had pushed the exchange to create cash reserves, but that it was preferable to be prepared for the worst while circumstances were good.
The corporation has run stress tests to verify that it can cover the costs of compliance, cyber assaults, and potential trading decreases.
“We want to ensure that we maintain those cash reserves so that we can continue to invest and continue to grow our products and services in the event that we go into a crypto winter.”
The term ‘crypto winter’ refers to a prolonged bear market, and it was coined during the prolonged decline from early 2018 to 2019.
Regulatory storm clouds are forming as a result of a law passed by the US Senate last week that is so vaguely written that DeFi platforms, miners, and validators could be classified as brokers for tax purposes.
These organisations may be obliged by the IRS to report user activities. Many in the crypto community are pressing their lawmakers hard because of the term ‘broker.’
While it is hoped that the bill will be changed in the House, there are concerns that if it is signed into law as is, a considerable proportion of retail crypto trading activity will be lost.
Binance, one of Coinbase’s main competitors, started amassing a similar emergency fund in 2019. However, the Binance Secure Asset Fund for Consumers (SAFU) fund is intended to reimburse users for security breaches and other cybersecurity-related difficulties.
Prior to the heated debate in the Senate, Coinbase had made $740 million in earnings in Q1 and $1.6 billion from $2.2 billion in revenue in Q2. High transaction fees on the platform from nearly nine million regular participants and approximately 9,000 institutional investors produce the majority of the exchange’s revenue.
Coinbase’s capacity to produce such significant profits based on above-average transaction costs on the network has resulted in a market value of roughly $51 billion.
Another cost that the war chest may have to cover is the introduction of new products. Coinbase is vulnerable to revenue loss due to its present reliance on transaction fees. As a result, the exchange may prioritise the development of additional financial services in order to diversify its revenue streams.
