Coinbase CEO Becomes Wall Street's Public Enemy No. 1
- Core Argument: Coinbase and traditional Wall Street banks are engaged in a fierce battle over the legality of cryptocurrency exchanges paying yields (such as stablecoin interest) to users. The core conflict lies in whether this constitutes a bank-like business operating without strict regulation, threatening the deposit base of traditional banks.
- Key Elements:
- The banking industry argues that exchanges like Coinbase paying yields of around 3.5% to stablecoin holders are no different from bank deposit interest but offer higher rates. This could trigger massive capital flight, threatening community banks and corporate lending businesses.
- Coinbase CEO Brian Armstrong advocates for free competition, arguing that banks should respond by raising their own deposit rates or entering the stablecoin market. He accuses banks of lobbying to stifle competitors.
- The controversy centers on the Clarity Act, which could prohibit such yield payments. Banking lobbyists warn of a risk of diverting about $6.6 trillion in deposits, leading to a delay in the related Senate vote.
- Brian Armstrong proposed a compromise, suggesting the creation of a new, strictly regulated category of stablecoin issuers allowed to pay yields to ensure fair competition.
- Coinbase has significantly increased its influence in Washington through large-scale political lobbying (investing tens of millions of dollars). Its stance is seen as crucial to the bill's passage, described as holding the "power of life and death" over the legislation.
Original Authors: Amrith Ramkumar, Dylan Tokar, Gina Heeb, The Wall Street Journal
Original Compilation: Luffy, Foresight News
During the World Economic Forum in Davos last week, Brian Armstrong, the CEO of Coinbase, the largest cryptocurrency platform in the United States, was having coffee with former UK Prime Minister Tony Blair when JPMorgan Chase CEO Jamie Dimon suddenly approached and interrupted their conversation.
"You're talking nonsense," Jamie Dimon said, pointing his finger directly at Brian Armstrong's face. The banker, a long-time cryptocurrency skeptic, had previously called Bitcoin a fraud.
According to people familiar with the matter, Jamie Dimon's core message was to demand that Brian Armstrong stop spreading false statements on television. Earlier that week, Brian Armstrong had publicly accused the banking industry of trying to obstruct the legislative process for establishing a new regulatory framework for digital assets in multiple business TV interviews.
This direct confrontation was at odds with the Davos Forum's original purpose of promoting 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 banks have adopted some use cases of cryptocurrency, such as providing services for clients' Bitcoin investments and using digital assets to improve the efficiency of fund transfers, they have drawn a clear red line when cryptocurrency touches their core business—personal deposits.
Currently, the banking industry and Coinbase have a fundamental disagreement 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 paying ongoing fees to stablecoin holders, with an interest rate of approximately 3.5%.
Bank of America CEO Brian Moynihan, JPMorgan Chase CEO Jamie Dimon
The banking industry believes that the yields paid by cryptocurrency exchanges to users are essentially no different from bank deposit interest. Since the interest rate on bank demand deposits is typically less than 0.1%, far lower than the yield levels in cryptocurrency, the banking industry fears that consumers will move large amounts of funds into the cryptocurrency market. They claim this trend would severely impact community banks and affect the conduct of corporate lending. Brian Armstrong and other practitioners in the cryptocurrency industry, however, believe the market should follow the principle of free competition. If banks want to compete with stablecoins, they can simply raise deposit interest rates or directly enter the stablecoin business.
The legislation, known as the "Clarity Act," could reshape the future landscape of daily financial services, covering core areas such as bank deposits and electronic payments.
According to people familiar with the matter, to facilitate a compromise between the two sides, the White House plans to convene a meeting this Monday with relevant groups from the banking and cryptocurrency industries. David Sacks, the Trump administration's commissioner for AI and cryptocurrency affairs, is expected to attend. Some sources indicate that Kara Calvert, Coinbase's Head of U.S. Policy, is also on the list of attendees.
Brian Armstrong, 43, co-founded Coinbase in 2012 and has been leading the cryptocurrency industry's quest for legitimacy and mainstream acceptance for years. As the head of this company with a market capitalization of approximately $55 billion, Brian Armstrong holds significant sway in policy debates related to the industry, including the current legislative battle in Washington. "Better to have no bill than a bad bill," Brian Armstrong posted on social platform X the day before a Senate committee was scheduled to vote on a draft bill. If passed, the draft would effectively prohibit companies like Coinbase from paying yields to customers, potentially costing Coinbase billions of dollars. Just hours later, the vote was abruptly postponed, causing an uproar across the financial world.
"The current situation is interpreted more as a confrontation between Coinbase and the banking industry, rather than the entire cryptocurrency industry versus the banking industry," said Ron Hammond, Director of Policy and Advocacy at the well-known crypto market maker Wintermute.
Brian Armstrong's counterattack did not stop with the X post on January 14th. He reiterated his views in subsequent television interviews, telling Bloomberg that bank lobbyists were "running around trying to kill competitors" and accusing the banking industry of "using customer deposits for lending without the customers' substantive consent." According to people familiar with the matter, these remarks also led to several awkward direct encounters with multiple bank CEOs at the Davos Forum.
"If you want to do banking business, then just get a banking license," Bank of America CEO Brian Moynihan reportedly said to Brian Armstrong during a 30-minute meeting at the main Davos conference center last week. The meeting was relatively friendly, but the exchange remained somewhat stiff.
Citigroup CEO Jane Fraser gave Brian Armstrong even less than a minute of her time. Coinbase is a client of Citigroup and JPMorgan Chase and also has commercial partnerships with several other banks.
Wells Fargo CEO Charlie Scharf was unwilling to give even a minute. When Brian Armstrong approached to speak, Charlie Scharf bluntly stated there was nothing to discuss between them. This conversation occurred while Charlie Scharf's former boss, Jamie Dimon, was nearby.
Aspiring to "Replace Traditional Banks"
Brian Armstrong, a graduate of Rice University in Houston with majors in economics and computer science, was an early proponent of digital currency concepts and the underlying blockchain technology. He studied the original Bitcoin whitepaper published in 2008 by the mysterious figure Satoshi Nakamoto. In 2011, while working at Airbnb, he encountered numerous difficulties transferring money to South America.
These experiences laid the groundwork for founding Coinbase. At the time, many investors were eager to enter the cryptocurrency space but faced a core problem: there was no dedicated platform to store digital assets. Coinbase was founded to solve this issue. When some clients wanted to trade Bitcoin rather than just custody assets, Coinbase naturally evolved into a cryptocurrency exchange.
Coinbase started in a small apartment in San Francisco, which also served as the company's first office. In 2017, after the other co-founder left, Brian Armstrong became the undisputed leader.
Multiple former colleagues interviewed earlier 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 likened his demeanor to that of a Vulcan from "Star Trek," an alien race known for being calm, restrained, and devoid of emotion.
In 2014, Coinbase CEO Brian Armstrong speaks on stage at the TechCrunch Disrupt Europe conference (London)
However, Brian Armstrong has never wavered in his vision for Coinbase's development. He positioned Coinbase as a benchmark company driving cryptocurrency integration into the American mainstream market. Today, Coinbase's business scope covers electronic payments, stock trading, commodity trading, and prediction markets, among other areas.
"Our ultimate goal is to become an alternative to traditional banks in people's eyes," he said in an interview with Fox Business last year. "We want to build a super financial app that provides users with various financial services."
As its business territory expanded, Brian Armstrong invested millions of dollars to build the cryptocurrency industry's largest lobbying team. After weathering several booms and busts in the cryptocurrency industry, Coinbase went public in April 2021, with its market capitalization once exceeding $100 billion. Brian Armstrong's personal stake was valued at approximately $13 billion.
In 2021, Coinbase employees celebrate the company's IPO with champagne outside the Nasdaq exchange in New York
After surviving the industry crash in 2022 and withstanding regulatory pressure from the Biden administration in 2023, Brian Armstrong began to fight back and gradually found his voice. The manager who once preferred writing code in the office with headphones on and avoided public speaking has now become a steadfast advocate for the cryptocurrency industry in Washington, where attitudes towards cryptocurrency are about to undergo a dramatic shift.
Through a series of super PACs, Coinbase has invested approximately $75 million in the 2024 U.S. elections, aiming to oppose candidates skeptical of cryptocurrency. It also established grassroots organizations to garner public support for cryptocurrency-related legislation. The super PAC announced this Wednesday that its funding has now reached $193 million.
Trump's victory in the 2024 election opened a decade-long-awaited window for Brian Armstrong to seek policy breakthroughs. He praised Trump for ushering in "a new dawn for cryptocurrency" and attended the "Crypto Gala" featuring Snoop Dogg during Trump's inauguration festivities. Now, the executive sheds his usual T-shirt and black jacket at least every two months, donning formal attire to visit Capitol Hill.
"In the U.S., Coinbase is at the forefront of everything 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 many companies to issue stablecoins, which directly fueled an explosive growth in the stablecoin business. The act prohibits stablecoin issuers themselves from paying interest to users but does not impose restrictions on exchanges like Coinbase or third-party entities. Banking groups view this omission as a legal loophole, directly triggering the intense battle surrounding the "Clarity Act."
The Long Road to Legislation
The U.S. House of Representatives passed its version of the "Clarity Act" last year, but its advancement in the Senate is considered extremely difficult, partly due to disagreements among lawmakers over the regulatory rules cryptocurrency firms should follow. The Senate Agriculture Committee, responsible for legislation related to the Commodity Futures Trading Commission, passed its version of the draft bill this Thursday. Lawmakers will ultimately need to push a version through the full Senate and then reconcile differences with the House version.
According to people familiar with the matter, Brian Moynihan's core message to Brian Armstrong was: if cryptocurrency firms like Coinbase wish to offer deposit-like services, the banking industry generally believes these firms should be subject to the same regulatory constraints as traditional banks. Regulatory agencies like the Federal Reserve and the Office of the Comptroller of the Currency strictly examine banks' risk profiles, regularly inspect their operations, and set clear rules for capital requirements for banks' lending and investment activities.
"The current dispute over yield rewards is an exception in our relationship with the banking industry. We maintain close partnerships with multiple banks and have announced several collaboration plans," said Faryar Shirzad, Coinbase's Chief Policy Officer.
Coinbase has a lucrative partnership with stablecoin issuer Circle. Through this collaboration, Coinbase earns substantial revenue shares from the business of the popular stablecoin USDC. Unlike other firms in the cryptocurrency industry, leveraging this exclusive partnership, Coinbase pays a 3.5% yield reward to some USDC holders. The company states that such incentives help attract users and provide consumers with more choices, especially when bank demand deposit interest rates are extremely low.
"There's no reason to prohibit paying interest to consumers," Brian Armstrong said in an interview with The Wall Street Journal last year.
Brian Armstrong speaks to the media on Capitol Hill
As the "Clarity Act" nears a vote in Congress, the banking industry has intensified its behind-the-scenes lobbying efforts. Citing a government estimate, they warned senators that approximately $6.6 trillion in deposits within the traditional financial system could be at risk of being diverted to the cryptocurrency market. This lobbying proved effective. The nearly 300-page draft bill contained several provisions and potential amendments that Brian Armstrong deemed unfavorable to the cryptocurrency industry. He subsequently withdrew his support for the bill. Hours later, Senate Banking Committee Chairman, Republican Senator Tim Scott of South Carolina, announced the cancellation of the vote.
According to people familiar with the matter, 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. If such issuers meet stricter regulatory standards, they could be permitted to pay yield rewards to users. This solution would theoretically allow banks and Coinbase to compete fairly in the stablecoin business. Others have suggested prohibiting most yield reward payments, creating only a very narrow exemption for a few companies like Coinbase.
The advancement of any solution requires Brian Armstrong's support.
"Now, the life or death of this bill is seen as being in Coinbase's hands," said Hilary Allen, a law professor at American University and securities law expert who is also a cryptocurrency skeptic. "It's truly astonishing."
