Coinbase, one of the leading cryptocurrency and bitcoin businesses, is acquiring a securities dealer that the company hopes will allow it to expand into the red-hot coin-offerings market.
The San Francisco-based firm said it is acquiring Keystone Capital Corp., a Cardiff, Calif.-based financial-services firm. Keystone is a Finra-registered broker-dealer, and it has licenses to operate as a registered investment adviser, as well as to run an alternative trading system, or ATS.
Terms of the deal weren’t disclosed.
For Coinbase, which currently trades just a handful of the largest cryptocurrencies, acquiring those licenses could open up new business opportunities and allow it to market its services to more institutional businesses. Buying Keystone also raises the prospect that Coinbase could, down the line, expand into products tied to stocks or other securities.
Coinbase will need regulatory approval to operate under the Keystone licenses. President and Chief Operating Officer
said that Coinbase is confident it will get those approvals and that the company expects it would take several months to integrate Keystone’s operations into its own once it obtain those approvals.
“We take our role in legitimizing the space very seriously,” Mr. Hirji said.
Coin offerings have sprouted up as an alternative to traditional startup funding such as venture capital, and the deal would allow Coinbase to start offering digital tokens that generally submit to regulatory oversight, also known as “security tokens.”
Startups creating coin offerings, a cross between crowd-funding and initial public offerings, have raised more than $13 billion since the start of 2017, but the Securities and Exchange Commission has consistently argued many of them fit the definition of a security.
That raises risks for the firms offering them and for any business that wants to operate as an intermediary, because they could be open to charges of selling unlicensed securities. Many cryptocurrencies exchanges list these tokens, but regulated firms like Coinbase, Circle and Gemini have been hesitant about doing so.
Coinbase is essentially buying Keystone for its licenses. The company said Keystone’s existing businesses would be wound down, and its operations integrated in Coinbase’s business, though Coinbase doesn’t expect that process will involve any layoffs, the company said. A Keystone representative had no immediate comment.
The move is also part of Coinbase’s strategy of moving beyond its base of retail crypto investors. The firm’s business exploded over the past 18 months—it now has more than 20 million customers and operates in 33 countries including a recent expansion into Japan—but the sector is crowded and activity slowed down after bitcoin’s more than 60% drop earlier this year.
The deal is also the latest indication that while Wall Street firms remain cool to the cryptocurrency sector, crypto businesses are racing to take customers from Wall Street. Earlier on Wednesday, two private firms, VanEck and SolidX, filed with the SEC for a bitcoin exchange-traded fund. Also, services firm Circle said it is seeking a banking license that would allow it to offer many of the same services that Coinbase plans to offer through Keystone.
“We’re in the early stages of a tech-led transformation of how money works,” said
founder and CEO of Circle.
One unusual wrinkle of Coinbase’s acquisition is that Keystone in 2016 signed a partnership with
tZero unit to build an ATS platform. Coinbase said that partnership would also be wound down. TZero announced in May that it is working with a unit of Canada’s TMX Group to build an exchange for security tokens.
Write to Paul Vigna at firstname.lastname@example.org