Coinbase CEO becomes Wall Street's number one enemy

Original Title: The Crypto CEO Who’s Become Enemy No. 1 on Wall Street

Original Author: Amrith Ramkumar, Dylan Tokar, Gina Heeb, The Wall Street Journal

Original Compilation: Luffy, Foresight News

Last week, during the World Economic Forum in Davos, Brian Armstrong, CEO of the United States’ largest cryptocurrency platform Coinbase, was having coffee with former UK Prime Minister Tony Blair when Jamie Dimon, CEO of JPMorgan Chase, suddenly stepped forward and interrupted their conversation.

“You’re talking nonsense,” Jamie Dimon said directly to Brian Armstrong’s face. The long-time skeptical banker, who previously called Bitcoin a scam.

According to insiders, Jamie Dimon’s core message was to demand that Brian Armstrong stop spreading false statements on television. Earlier that week, Brian Armstrong publicly accused in multiple business TV programs that the banking industry was trying to obstruct legislation aimed at establishing a new regulatory framework for digital assets.

This direct confrontation was at odds with the original intention of the Davos forum, which aims to promote cooperation among global leaders.

As cryptocurrencies rapidly integrate into the mainstream US financial sector, Wall Street giants have finally realized the threat this field poses. Although banking institutions have adopted some applications of cryptocurrencies, such as providing services for clients’ Bitcoin investments and using digital assets to improve transfer efficiency, they have drawn a clear red line when it comes to core banking services like personal deposits.

Currently, there is a fundamental disagreement between the banking industry and Coinbase on a core issue: whether cryptocurrency exchanges have the right to pay regular yields to users holding digital tokens. These so-called yield rewards refer to ongoing payments to stablecoin holders, with an interest rate of about 3.5%.

Chief Executive Officer of US Banks Brian Moynihan, JPMorgan Chase CEO Jamie Dimon

The banking industry believes that these yields paid by cryptocurrency exchanges to users are essentially no different from bank deposit interest. However, the interest rate on traditional checking accounts is usually less than 0.1%, far below the returns offered by cryptocurrencies. Therefore, banks worry that consumers will massively shift their funds into the crypto market. They argue that this trend would severely impact community banks and hinder corporate lending activities. Meanwhile, Brian Armstrong and other crypto industry practitioners believe that the market should follow the principles of free competition. If banks want to compete with stablecoins, they can simply raise deposit interest rates or directly enter the stablecoin business.

This legislation, called the “Clarity Act,” could reshape the future landscape of everyday financial services, covering core areas such as bank deposits and electronic payments.

According to insiders, to push for a compromise, the White House plans to convene talks this Monday with relevant groups from the banking and crypto sectors, with David Sacks, the Biden administration’s AI and cryptocurrency policy coordinator, expected to attend. Some insiders also say that Kara Calvert, Coinbase’s US policy head, has been included in the list of participants.

Brian Armstrong, 43, co-founded Coinbase in 2012 and has led the crypto industry’s efforts to seek legalization and mainstream recognition for years. As the leader of this company valued at about $55 billion, Brian Armstrong wields significant influence in policy debates related to the industry. One such debate is the legislative game in Washington. “It’s better not to have a bad bill at all than to have one,” he said on social platform X the day before a Senate committee was scheduled to vote on a draft bill that, if passed, would essentially ban companies like Coinbase from paying yields to customers or cause Coinbase to lose billions of dollars. Just hours later, the vote was suddenly postponed, causing a stir across the financial world.

“The current situation is more seen as a confrontation between Coinbase and the banking industry, rather than a broader clash between the entire crypto sector and banks,” said Ron Hammond, policy and advocacy director at the well-known crypto market maker Wintermute.

Brian Armstrong’s counterattack did not stop with that X post on January 14. In subsequent TV interviews, he reiterated his views, telling Bloomberg that bank lobbyists are “active everywhere trying to kill off competitors,” and accused the banking industry of “using customer deposits for loans without proper consent.” According to insiders, these remarks also led to several awkward direct encounters with multiple bank CEOs at the Davos forum.

“If you want to do banking business, just get a banking license,” last week, during a 30-minute meeting at the main conference center in Davos, Brian Moynihan, CEO of US Banks, said to Brian Armstrong. The meeting was relatively friendly, but the tone remained somewhat stiff.

JPMorgan Chase CEO Jamie Dimon’s former boss, Jamie Dimon, was nearby during this exchange.

Aspiring to “Replace Traditional Banks”

Brian Armstrong graduated from Rice University in Houston, majoring in economics and computer science. He was an early supporter of digital currency concepts and underlying blockchain technology. He studied the original white paper of Bitcoin published in 2008 by the mysterious Satoshi Nakamoto. In 2011, while working at Airbnb, he encountered many inconveniences when transferring funds to South America.

These experiences laid the groundwork for founding Coinbase. At that time, many investors eager to enter crypto faced a core problem: no dedicated platform to store digital assets. Coinbase was created to solve this issue. When some customers wanted to trade Bitcoin rather than just hold assets, Coinbase pivoted into a cryptocurrency exchange.

Coinbase started in a small apartment in San Francisco, which was also the company’s first office. After another co-founder left in 2017, Brian Armstrong became the undisputed leader.

Several former colleagues previously interviewed by The Wall Street Journal described Brian Armstrong as shy, sometimes even struggling to communicate smoothly with some employees, and appearing nervous when reprimanding subordinates. Some former employees likened his style to that of Vulcans from “Star Trek,” known for their calm restraint and emotional detachment.

2014, Coinbase CEO Brian Armstrong speaks on stage at TechCrunch Disrupt Europe (London)

But in terms of Coinbase’s vision, Brian Armstrong has never wavered. He positions Coinbase as a flagship enterprise promoting the integration of cryptocurrencies into the US mainstream market. Today, Coinbase’s business spans electronic payments, stock trading, commodities trading, and prediction markets.

“Our ultimate goal is to become a substitute for traditional banks in people’s eyes,” he said last year in an interview with Fox Business. “We want to build a super financial app that provides users with a variety of financial services.”

As the business expanded, Brian Armstrong invested millions of dollars to build the largest lobbying team in the crypto industry. After several boom-and-bust cycles in the crypto sector, Coinbase went public in April 2021, with a market cap once exceeding $100 billion. Brian Armstrong’s personal holdings were valued at about $13 billion.

2021, Coinbase employees celebrate going public outside Nasdaq in New York with champagne

Having survived the industry’s collapse in 2022 and the regulatory crackdown by the Biden administration in 2023, Brian Armstrong began to push back and found his voice. Once a manager who preferred wearing headphones while coding in the office and reluctant to speak publicly, he has now become a steadfast advocate for the crypto industry in Washington. The attitude of Washington toward cryptocurrencies is also set to undergo a revolutionary change.

Coinbase has invested about $75 million in the 2024 US election through a series of super PACs, aiming to oppose candidates skeptical of cryptocurrencies, and has also established grassroots organizations to garner public support for crypto-related legislation. This super PAC announced this Wednesday that its funds have reached $193 million.

Trump’s victory in the 2024 election has opened a window that Brian Armstrong has been waiting for a decade to achieve policy breakthroughs. He praised Trump for ushering in a “new era of cryptocurrency,” and attended the “Crypto Celebration” hosted during Trump’s inauguration, with Snoop Dogg performing. Now, this executive at least every two months takes off his usual T-shirt and black jacket to visit Capitol Hill in formal attire.

“In the US, Coinbase is at the forefront of all crypto-related affairs,” said Anthony Scaramucci, founder of SkyBridge Capital and a long-time crypto investor.

Last summer, Trump signed the “Genius Act,” which cleared the way for many companies to issue stablecoins, directly fueling explosive growth in stablecoin business. The law prohibits stablecoin issuers from paying interest to users but does not restrict exchanges like Coinbase or third-party institutions. Banking groups see this loophole as a legal gap, which has also triggered fierce battles over the “Clarity Act.”

The Long Legislative Road

The US House of Representatives passed its version of the “Clarity Act” last year, but its progress in the Senate is considered very difficult, partly due to disagreements among senators on the regulatory rules for crypto companies. The Senate Agriculture Committee, responsible for legislation related to the Commodity Futures Trading Commission, approved its version of the bill this Thursday. Ultimately, senators need to push the full Senate to pass a version of the bill and then negotiate differences with the House.

Insiders say that Brian Moynihan’s core message to Brian Armstrong is: if Coinbase and other crypto firms want to offer deposit-like services, they should be subject to the same regulations as traditional banks. US federal agencies like the Federal Reserve and the Office of the Comptroller of the Currency conduct strict risk assessments, regularly review operations, and set clear rules for capital requirements on loans and investments.

“The controversy over yield rewards is a rare case in our cooperation with banks. We maintain close cooperation with multiple banks and have announced several partnership plans,” said Coinbase Chief Policy Officer Faryar Shirzad.

Coinbase has established lucrative partnerships with stablecoin issuer Circle, earning substantial revenue shares from the popular USDC stablecoin. Unlike other crypto firms, Coinbase pays a 3.5% yield reward to some USDC holders based on this exclusive cooperation. The company states that such incentives help attract users and provide more options for consumers amid extremely low bank savings interest rates.

“There is no reason to prohibit paying interest to consumers,” Brian Armstrong said last year in an interview with The Wall Street Journal.

Brian Armstrong speaks to the media at Capitol Hill

As the “Clarity Act” approaches a vote in Congress, the banking industry has launched intense lobbying behind the scenes. They cite government estimates warning that about $6.6 trillion in deposits in the traditional financial system could be diverted to the crypto market. This lobbying has been effective; the nearly 300-page draft bill contains several provisions and potential amendments that Brian Armstrong believes are unfavorable to the crypto industry. He then withdrew his support for the bill. Hours later, the chairman of the Senate Banking Committee, South Carolina Republican Senator Tim Scott, announced the cancellation of the vote.

Insiders reveal that Brian Armstrong has proposed his own solution to the current deadlock. He told Brian Moynihan that a new category of stablecoin issuers could be established, which, if meeting stricter regulatory standards, could be allowed to pay yield rewards to users. This plan theoretically allows fair competition between banks and Coinbase in the stablecoin business. Others have suggested banning most yield reward payments, leaving only narrow exemptions for a few companies like Coinbase.

Any progress on these solutions depends on Brian Armstrong’s support.

“Now, the power to decide the fate of this bill is believed to rest in Coinbase’s hands,” said Hilary Allen, a law professor at American universities and securities law expert, also a crypto skeptic. “It’s truly shocking.”

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