Coinbase and IEX look set to launch the first federally regulated US crypto exchange

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(Kitco News) – Amid a crackdown on the crypto industry in the United States focused on cryptocurrency exchanges, Coinbase is reportedly in talks with exchange platform IEX to create a federally authorized marketplace for digital assets, according to people familiar with the matter.

Fox Business reports that IEX Chairman Brad Katsuyama told them that he and his staff are in talks with Coinbase to launch the new venture after recent meetings with Securities and Exchange Commission (SEC) officials focused on getting SEC chief Gary Gensler’s approval of such an exchange.

Katsuyama, who is best known for being the main character of the book Flash Boyspreviously partnered with former FTX CEO Sam Bankman-Fried (SBF) to launch the new exchange, but that relationship broke down during the collapse of FTX and the filing of criminal and civil charges against SBF.

Gensler’s public calendar shows that both Bankman-Fried and Katsuyama held proposal meetings with commission officials and the SEC chairman shortly before the November bankruptcy filing by FTX and the subsequent arrest of SBF.

Katsuyama then began negotiating with the SEC on his own, and it is unclear at what point Coinbase joined the conversation. The IEX manager refused to comment on the matter.

According to an IEX spokesperson, the exchange continues to explore ways it “can help provide a regulatory pathway for digital asset securities, including conversations with regulators and other market participants, but has not finalized any specific proposal that includes third parties.”

This possible partnership between IEX and Coinbase comes amid an increase in enforcement actions against crypto-related companies, and as many in the industry have been looking for ways to gain approval from the SEC to create a marketplace where digital assets can be traded without fear of a regulatory backlash.

Recently, Gensler has filed enforcement actions against several crypto exchanges, including Kraken, Gemini and Binance for alleged violations of the SEC rule, and has also issued a Wells Notice to stablecoin issuer Paxos for the issuance of Binance USD (BUSD).

There is also ongoing litigation between the SEC and cross-border payments company Ripple, which has been accused of violating securities laws by failing to register the XRP token before offering it for sale to the public. The outcome of the case is highly anticipated by the crypto community, and it is expected to be resolved sometime in 2023.

The potential IEX-Coinbase partnership comes as the crypto exchange looks for ways to boost revenue after over a year of the brutal crypto winter. The recent earnings report from the company showed that it had fourth-quarter revenue of $605 million, but still lost $557 million during Q4 2022, a significant decrease from the $840 million the company earned in the same quarter of 2021.

Select financial key figures. Source: Coinbase Shareholders’ Letter

All told, Coinbase lost $2.625 billion over the course of 2022, while the broader crypto ecosystem saw its market cap shrink by more than $2 trillion. Coinbase now looks to improve profitability and outlook by becoming the first federally approved crypto marketplace in the US