Coinbase is building its Bermuda strategy just as legal peril grows in the US and as its business of crypto trading collapses.

It also comes as scepticism grows globally and on the island towards blockchain-related ventures following dramatic failures and dashed hopes in the Bahamas, in Bermuda and elsewhere.

Nasdaq-listed Coinbase has received two Digital Asset Business licences in Bermuda, one granted in April and the other in September.

With a Class F licence from the Bermuda Monetary Authority, Coinbase International offers the trading of perpetual futures to non-US institutions and certain qualified non-US individuals.

“Bermuda was chosen as one of our international hubs as the BMA is a highly respected and experienced financial regulator that is led by a world-class executive team and board of directors,” the company said at the time in a blog.

Earlier this year, chief executive Brian Armstrong suggested the possibility of the company leaving the United States altogether due to the lack of clarity from the regulators, and in June, the company was sued by the US Securities and Exchange Commission for allegedly offering securities in violation of federal law.

The complaint claims that Coinbase is “evading the disclosure regime that Congress has established for our securities markets”.

"You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said at the time.

The suit has gained considerable support, initially from ten US states and then from the North American Securities Administrators Association — which represents regulators in US and Mexican states and Canadian provinces.

Academics have also weighed in.

Coinbase has challenged the case against it claiming that digital assets are not securities and are therefore outside the jurisdiction of the regulator.

In its answer to the plaintiff’s complaints, the company said: “The assets trading on Coinbase’s secondary market platform are not within the SEC’s authority because, contrary to the SEC’s assertion, they are not ‘investment contracts’ and therefore not ‘securities’.’’

The company is saying that its products do not meet the Howey test, a four-point test derived from a Supreme Court ruling that the SEC uses to determine if a financial product is a security, and subject to its rules and the relevant laws.

Coinbase’s business has been deteriorating for some time.

Trading volume on the exchange in dollar terms dropped by more than half on year in the third quarter, according to a Bloomberg report. Trading peaked in late 2021.

In the second quarter this year, the company lost $97 million after losing $2.6 billion in full-year 2022.

Coinbase’s stock has followed a similar trajectory. The company went public in late 2021 at $250 a share, started trading at $381 and hit $430.

Since peaking, the stock has lost more than 80 per cent of its value. What was almost a $90 billion company is now worth about $17 billion.

Crypto overall is facing considerable scepticism globally following the dramatic collapse of FTX in late 2022.

Bermuda is dealing with its own crypto winter with the US Chapter 11 filings of Bittrex and BlockFi, the stalling of Jewel Bank and the lack of follow through by Binance, the world’s largest crypto exchange, in establishing a substantial local presence.

The recent failure of Vesttoo, an insurtech with a significant Bermuda presence, is the latest addition to the list. The company’s bankruptcy is still working its way through courts in Bermuda, Delaware and elsewhere.

Coinbase’s arrival comes with the backdrop of a major cyberattack that took down Bermuda-government computers for weeks. The origins of the attack remain a mystery, while the possibility that sensitive data was ex-filtrated remains.

As Coinbase makes an international push, US courts have been upholding the SEC’s pursuit of crypto-related ventures operating beyond US borders.

In the Terraform case, in which the collapse of Singapore-incorporated, Korea-run stablecoin wiped out $40 billion, a US judge ruled that the defendants had to face SEC fraud accusations, notably expressing doubt about the argument that crypto is not subject to securities laws.

The judge also reiterated an earlier opinion that even the lightest connection to the US establishes SEC jurisdiction.

Coinbase has done little if anything on the ground so far in Bermuda. It has no actual presence at its registered office on Par-la-Ville and has little to say on what it is doing here. The company has put an embargo on any news about its Bermuda operations until October 25.