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With virtually no warning save a teaser tweet the day before, the Coinbase Bitcoin Exchange went live Monday.
This is a major step for Bitcoin. As the first licensed U.S.-based Bitcoin exchange, it will help legitimize the digital currency in the eyes of the public as well as the broader financial community.
It was no coincidence that Coinbase won $75 million in venture capital funding last week. Among the investors were the New York Stock Exchange, former Citigroup Inc. (NYSE: C) Chief Executive Officer Vikram Pandit, and Spanish banking giant Banco Bilbao Vizcaya Argentaria SA (NYSE: BBVA).
"To have an organized exchange that has the backing of thoughtful venture capitalists and investors addresses one of the main problems with Bitcoin: its extreme volatility," Duke University finance professor and cryptocurrency expert Campbell R. Harvey told The Wall Street Journal. "Bitcoin has been sorely in need of something like this."
But just as importantly, the Coinbase Bitcoin Exchange finally will give U.S. investors a safe, secure, and seamless option for trading Bitcoin.
Well, at least for investors in 24 states. Financial regulations require Coinbase to win approval on a state-by-state basis.
Even so, the Coinbase Bitcoin Exchange is a major step forward. Until now, U.S. Bitcoin traders had to use exchanges based overseas. But the lack of regulation, inadequate security, and difficulty in getting U.S. dollars in and out of these exchanges has made them extremely risky.
Remember, it was just about this time last year that the Japan-based Mt. Gox Bitcoin exchange started to unravel. Mt. Gox was by far the largest Bitcoin exchange in the world.
When it collapsed in February 2014, it lost 750,000 customer bitcoins and 100,000 of its own. The Mt. Gox disaster remains a black mark on the digital currency. It's a big reason many have continued to avoid Bitcoin.
Mt. Gox hasn't been the only Bitcoin operation with security issues. Many Bitcoin wallet services and exchanges have been hacked over the past few years.
It's still happening. Just a few weeks ago, BitStamp – a large Bitcoin exchange based in Slovenia – was hacked. BitStamp said it lost 19,000 bitcoins worth about $5 million.
The lousy security at so many Bitcoin companies slowed mainstream adoption – and rightly so.
This is why the Coinbase Bitcoin Exchange will make a difference.
Early Bitcoin companies operated on the fringes of the financial world, unregulated and with little understanding of how to keep people's money safe. The Coinbase Exchange promises to change all that.
Just being regulated in the United States and by individual states makes the Coinbase Bitcoin Exchange much safer than overseas alternatives. Beyond being licensed and regulated, the Coinbase Exchange has put extensive security measures in place…
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
http://www.prnewswire.com/news-releases/coinbase-inc–national-securities-law-firm-investigates-licensure-of-coinbases-bitcoin-exchange-300028022.html
Someone should tell you guys that they're technically "illegal"
Jack,
All the initial reports – including those in major publications – stated that Coinbase was properly licensed. It was only when New York regulators objected the next day that any problems came to light. Both Coinbase and the New York State Dept. of Financial Services say they are continuing to work together. And Coinbase says its operating in a "grey area" because Bitcoin regulations have not yet been created.
It might all work out eventually – no legal action has been taken against Coinbase – but the company handled this poorly. Once again, it makes the Bitcoin look like a rogue currency. They probably just wanted to be the first U.S. exchange, but they should have waited to do it properly.