Coinbase CEO has become Wall Street's public enemy number one

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

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

Original Translation: Luffy, Foresight News

Last week during the World Economic Forum in Davos, Brian Armstrong, CEO of the largest cryptocurrency platform in the U.S., Coinbase, was having coffee with former British Prime Minister Tony Blair when JPMorgan CEO Jamie Dimon suddenly interrupted their conversation.

"You’re talking nonsense," Jamie Dimon said, pointing directly at Brian Armstrong. This long-time skeptic of cryptocurrency had previously called Bitcoin a scam.

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

This confrontation was at odds with the Davos Forum's intention to promote cooperation among global leaders.

As cryptocurrency rapidly integrates into the mainstream of American finance, Wall Street giants have finally recognized the threat posed by this sector. Although banking institutions have accepted some applications of cryptocurrency, such as providing services for clients' Bitcoin investments and using digital assets to enhance the efficiency of fund transfers, they have drawn a clear line when it comes to cryptocurrency touching their core business of 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 made to stablecoin holders, with interest rates around 3.5%.

Bank of America CEO Brian Moynihan, JPMorgan CEO Jamie Dimon

The banking industry believes that the yields paid by cryptocurrency exchanges to users are essentially no different from bank deposit interest. With interest rates on bank checking accounts typically below 0.1%, far lower than the yields offered by cryptocurrencies, the banking sector fears that consumers will move large amounts of money into the cryptocurrency market. They claim this trend will severely impact community banks and affect the availability of corporate loans. Meanwhile, Brian Armstrong and other industry practitioners argue that the market should follow the principles of free competition, and if banks want to compete with stablecoins, they can simply raise deposit rates or directly enter the stablecoin business.

The legislation known as 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 facilitate a compromise between the two sides, the White House plans to convene talks between banking and cryptocurrency industry groups this Monday, with David Sacks, the Trump administration's commissioner for artificial intelligence and cryptocurrency affairs, expected to attend. Some insiders have indicated that Coinbase's U.S. policy chief, Kara Calvert, is also on the attendee list.

43-year-old Brian Armstrong co-founded Coinbase in 2012 and has led the cryptocurrency industry in seeking legitimacy and mainstream recognition over the years. As the captain of this approximately $55 billion company, Brian Armstrong holds significant influence in policy debates related to the industry, with the current legislative battle in Washington being one of them. "It’s better to have no bill than to have a bad one," he stated on social media platform X the day before a Senate committee was scheduled to vote on a bill that, if passed, would effectively prohibit companies like Coinbase from paying yields to customers, potentially costing Coinbase billions. Just hours later, the vote was unexpectedly postponed, causing a stir throughout the financial community.

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

Brian Armstrong's counterattack did not stop with the January 14 post on X. In subsequent television interviews, he reiterated his views, telling Bloomberg that bank lobbyists are "running around trying to shut down competitors," and accused the banking industry of "using customers' deposits for lending without their substantive permission." Insiders described how these remarks led to several awkward encounters between him and various bank CEOs at the Davos Forum.

"If you want to do banking business, then just get a bank license," Brian Moynihan said during a 30-minute meeting with Brian Armstrong at the Davos main exhibition center last week. The atmosphere of the meeting was relatively friendly, but the communication remained somewhat stiff.

Citigroup CEO Jane Fraser gave Brian Armstrong less than a minute of her time. Coinbase is a client of Citigroup and JPMorgan, and has established business relationships with several other banks.

Wells Fargo CEO Charlie Scharf was even less willing to spare a minute. When Brian Armstrong approached him, Charlie Scharf bluntly stated that there was nothing to discuss between them. This conversation took place while Jamie Dimon, Charlie Scharf's former boss, was not far away.

Aspiring to "Replace Traditional Banks"

Brian Armstrong graduated from Rice University in Houston, majoring in economics and computer science, and is an early advocate of digital currency concepts and underlying blockchain technology. He studied the original Bitcoin white paper published in 2008 by the mysterious figure Satoshi Nakamoto, and during his time at Airbnb in 2011, he faced many inconveniences when transferring money to South America.

These experiences laid the groundwork for his founding of Coinbase. At that time, many investors were eager to enter the cryptocurrency space but faced a core problem: there was no dedicated platform to store digital assets. The creation of Coinbase was aimed at solving this issue, and when some customers wanted to trade Bitcoin rather than just hold assets, Coinbase naturally transformed into a cryptocurrency exchange.

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

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

In 2014, Coinbase CEO Brian Armstrong speaks on stage at the TechCrunch Disrupt Europe conference in London

However, Brian Armstrong has never wavered in his vision for Coinbase's development. He positions Coinbase as a benchmark company for promoting the integration of cryptocurrency into the mainstream market in the U.S., and today, Coinbase's business scope covers electronic payments, stock trading, commodity trading, and prediction markets, among other areas.

"Our ultimate goal is to become a replacement for traditional banks in people's eyes," he stated in an interview with Fox Business last year. "We want to create a super financial application that provides users with a variety of financial services."

As the business landscape continues to expand, Brian Armstrong has invested millions of dollars to build the largest lobbying team in the cryptocurrency industry. After experiencing several rounds of boom and bust in the cryptocurrency sector, Coinbase went public in April 2021, with its market capitalization briefly exceeding $100 billion, and Brian Armstrong's personal stake reaching approximately $13 billion.

In 2021, Coinbase employees celebrate the company's IPO outside the Nasdaq in New York with champagne

Having survived the industry's collapse in 2022 and withstanding regulatory pressure from the Biden administration in 2023, Brian Armstrong began to launch counterattacks and gradually found his voice. This manager, who once preferred to write code in the office wearing headphones and was reluctant to speak publicly, has now become a steadfast spokesperson for the cryptocurrency industry in Washington, and the attitude of Washington towards cryptocurrency is about to undergo a dramatic change.

Coinbase has invested approximately $75 million in a series of super political action committees for the 2024 U.S. elections, aiming to oppose candidates who are skeptical of cryptocurrency, while also establishing grassroots organizations to garner public support for cryptocurrency-related legislation. This super political action committee announced on Wednesday that its funding has now reached $193 million.

If Trump wins the 2024 election, it would open a long-awaited window for Brian Armstrong to achieve policy breakthroughs. He praised Trump for ushering in "the dawn of a new era for cryptocurrency" and attended a "cryptocurrency gala" during Trump's inauguration ceremony, featuring Snoop Dogg. Now, this executive changes out of his usual T-shirt and black jacket into formal attire to visit Capitol Hill at least every two months.

"In the U.S., Coinbase is at the forefront of all matters related to cryptocurrency," said Anthony Scaramucci, founder of SkyBridge Capital and a long-time cryptocurrency investor.

Last summer, Trump signed the "Genius Act," clearing the way for numerous companies to issue stablecoins, which directly spurred explosive growth in the stablecoin business. The act prohibits stablecoin issuers from paying interest to users, but does not impose restrictions on exchanges like Coinbase or third-party institutions. The banking industry groups view this loophole as a legal gap, which has directly triggered the fierce battle surrounding the "Clarity Act."

A Long Legislative Road

The U.S. House of Representatives passed its version of the "Clarity Act" last year, but advancing the bill in the Senate is considered extremely challenging, partly due to disagreements among lawmakers regarding the regulatory rules that cryptocurrency companies should follow. The Senate Agriculture Committee, responsible for legislation related to the Commodity Futures Trading Commission, passed its version of the bill draft this Thursday. Lawmakers will ultimately need to push a version of the bill through the full Senate and then negotiate with the House to resolve differences between versions.

According to insiders, the core point expressed by Brian Moynihan to Brian Armstrong is that if cryptocurrency companies like Coinbase wish to provide deposit-like services, the banking industry generally believes these companies should be subject to the same regulatory constraints as traditional banks. Regulatory agencies such as the Federal Reserve and the Office of the Comptroller of the Currency conduct strict reviews of banks' risk conditions, regularly inspect their operations, and establish clear rules for the capital requirements of banks' lending and investment activities.

"This controversy over yield rewards is indeed an exception in our relationship with the banking industry. We maintain close cooperation with several banks and have announced multiple collaboration plans," said Coinbase Chief Policy Officer Faryar Shirzad.

Coinbase has established a lucrative partnership with stablecoin issuer Circle, allowing it to earn substantial revenue shares from the popular stablecoin USDC. Unlike other companies in the cryptocurrency industry, Coinbase pays some USDC holders a 3.5% yield reward based on this exclusive partnership. The company states that such incentives help attract users and provide consumers with more choices in a context where bank checking account interest rates are extremely low.

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

Brian Armstrong speaks to the media on Capitol Hill

As the "Clarity Act" is about to enter the voting stage in Congress, the banking industry has begun high-intensity lobbying activities behind the scenes. They cited a government estimate warning senators that approximately $6.6 trillion in deposits in the traditional financial system could be at risk of being siphoned off by the cryptocurrency market. This lobbying has had a significant effect, as the nearly 300-page bill draft contains several provisions and potential amendments that Brian Armstrong believes are detrimental to the cryptocurrency industry. He subsequently withdrew his support for the bill, and just hours later, Senate Banking Committee Chairman Tim Scott, a Republican from South Carolina, announced the cancellation of the vote.

According to insiders, Brian Armstrong has proposed his own solution to the current impasse. He told Brian Moynihan that a new category of stablecoin issuers could be established, allowing those who meet stricter regulatory standards to pay yield rewards to users. This proposal theoretically allows the banking industry and Coinbase to compete fairly in the stablecoin business. Others have suggested that most yield reward payments could be prohibited, with only a very narrow range of exemptions defined for companies like Coinbase.

Any advancement of a solution relies on Brian Armstrong's support.

"Today, the fate of this bill is believed to be in Coinbase's hands," said Hilary Allen, a law professor and securities law expert at American University, who is also a cryptocurrency skeptic. "This is truly shocking."

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