I’m getting alot of questions about what I mean by “regulatory arbitrage” and why Armstrong “dug his own grave” by championing deregulation. For instance, regarding the custody business. Coinbase was the initial sole winner when the SEC issued SAB 121 guidance in early 2022. It had basically a monopoly on corporate custody services and could charge whatever it wanted. Considering this lined up with the launches of multiple wildly successful Bitcoin ETF products, it helped drive some spectacular earnings. But when that guidance got reapealed with the new administration (thanks in part to Coinbase lobbying), it opened the floodgates to competition. This from much larger and more respected financial institutions that don’t have the same history of data breaches. With custody as essenially a commoditzed service (function of insurance basically), the margins will naturally compress with competition. This will accentuate over time and negatively impact Coinbase results. So while many make emotionally charged arguments about the benefit of Coinbase to the greater crypto ecosystem, it has not done its shareholders any favors by fundamentally checkmating one of its most hyped and previously high margin business segments.

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