Coinbase is playing hardball. They’re directly in the ring with regulators, gloves off, and they’re calling for clarity. At what cost? That $90 million in lost staking rewards isn’t chump change either. Is this regulatory standoff some sort of gambit, or are they painting themselves into a corner?

Is Regulatory War a Smart Bet?

Coinbase's argument is clear: state-level lawsuits against their staking program are unfounded, and they're costing users money. They point to the SEC’s dismissal of their lawsuit as one of their most telling pieces of evidence. Further supporting their position, five of the states have already retreated. In fact, they go so far as to call these bans “picking winners and losers” – a loaded charge of egregious market rigging.

Let's be real. This isn't David vs. Goliath. Coinbase is a multi-billion dollar company. In reality, they’re not some scrappy underdog tooth-and-nail fighting for survival. Second, they’re a powerful industry player that has actively sought to shape the regulatory landscape. Maybe that's the problem. Or are they so busy winning the war that they’re losing the battles in the process?

That $90 million is pretty impressive on its face, but could it be the entire story? How much revenue did Coinbase accrue by providing staking to begin with? What are the long-term reputational costs associated with this continued legal struggle? These lawsuits leave behind a pall of uncertainty, and uncertainty is what investors are most afraid of.

Staking Ban: Consumer Protection Or Overreach?

The staking bans don’t just hurt consumers by restricting their choice and forcing them onto other, less regulated platforms. It's a valid point. Is it a disingenuous one?

Regulators, for their part, may claim that they’re doing consumers a favor by shielding them from confusing and risky investments. Staking may seem simple, but you’re placing your assets under lock and key with the potential for rewards. What happens if the platform fails? What security contingencies exist if the underlying blockchain becomes insecure due to a fork or other events?

This isn't just about staking. But it is more than that. It’s about the all-important first-principles question of how exactly crypto should be regulated. Should it be regulated like securities, subjecting it to tight regulatory supervision and direct investor protections? Or should it be kept on a shorter leash with greater restraint, even if that requires taking on more risk?

Imagine that it’s the beginning of the internet and still largely unexplored, maybe even foolishly untouched. It was sort of like the Wild West days where there really weren’t that many rules, and there were just infinite possibilities. That left room for scams, fraud, and exploitation. In time, regulations took hold to protect consumers and foster a more orderly market. Is crypto heading down the same path?

Advocacy or Self-Interest: A Fine Line?

Coinbase is increasing its lobby efforts, taking the FDIC to court and sending letters to the Office of Government Ethics. In doing so, they paint a somewhat self-serving picture of a noble quest for regulatory clarity. We should not overlook the fact that Coinbase would greatly benefit from a friendly regulatory landscape. Their success is linked to the future of crypto.

There’s an incredible parallel here to big tech’s current, successful lobbying efforts. Just as Google, Amazon and Facebook have spent millions in recent years to influence policy in their favor. Are Coinbase's actions any different? They’re taking a game to Washington, but it’s a high stakes game.

Even with all the positive fortune of crypto adoption this year, Coinbase’s stock is actually down this year. Is this possibly due to the fact that the market considers their pugilistic stance an albatross? That’s great news for investors — one thing investors don’t like is uncertainty, and a drawn-out regulatory fight is the height of uncertainty.

Maybe we’d get better results if we were a little less adversarial. Instead of taking regulators to court, perhaps Coinbase would be better off collaborating with them to mold clear and sensible guidelines. It will be less expedient, however it will better serve the long-term needs of all the users that it impacts.

Ultimately, Coinbase's gamble may pay off. The $90 million loss is a serious wake-up call. As with all things crypto, this is not a sure thing. Occasionally, the smartest way to win a battle is to figure out how to not be in one to begin with.