Cryptocurrency business Shapeshift was “gutted” by legal fees and regulation last year, its CEO told Yahoo Finance UK.
“Last year was largely about us navigating the tricky regulatory landscape, which was really difficult and expensive,” Shapeshift CEO and founder Erik Voorhees told Yahoo Finance UK at the Consensus conference in New York last week.
Founded in 2014, Shapeshift is one of the oldest cryptocurrency exchange businesses. It has raised over $10m in funding from backers including well-known European venture capital fund Lakestar, which has backed businesses like Skype and Spotify.
Shapeshift originally functioned a little like an online vending machine, allowing people to anonymously buy cryptocurrency without signing up.
However, last October the company introduced new rules requiring people to register for accounts in their own names as part of anti-money laundering safeguards. Voorhees said these changes were “both an engineering challenge and also really gutted the business.”
“Going from a frictionless system that preserved the privacy of users to one where you’re forcing them not to be private anymore is obviously going to cause a large disruption in the business,” he said.
“We’ve had to rebuild our entire customer base,” Voorhees added. “We’ve had periods of wild profitability, right now we’re not profitable. We’ll get back to wild profitability. It’s largely just about being patient, to endure that cyclical nature.”
Swiss-headquartered Shapeshift said in a blog post in January that it received 60 law enforcement requests last year, including ones from the FBI, the US Department of Homeland Security, and the Securities and Exchange Commission.
Asked if the changes to Shapeshift were as a result of regulatory pressure, Voorhees said: “I won’t get into that but let’s just say it was not voluntary.”
“We’ve spent millions of dollars on legal fees and trying to navigate this stuff and that continues,” he said. “There is no resolution to legal grey area and we’re an international company. Every country is a little different, most countries have multiple regulators, none of the regulators really know how to treat this stuff and this stuff keeps changing.”
A Wall Street Journal investigation last year claimed that Shapeshift was used to launder $9m-worth of cryptocurrency. Voorhees strongly disputed the article’s claims in a blog post and downplayed any link between the article and regulatory pressure when asked by Yahoo Finance UK.
He said that the ongoing regulatory difficulties with cryptocurrency were unlikely to be resolved any time soon due to the speed at which crypto is evolving.
“By the time [regulators] take their three years to understand a certain piece of the industry it’s already become more diverse,” Voorhees said. “I don’t think it’ll be like that forever but I think it will probably be like that for at least another decade.”
Voorhees said Shapeshift was now “focused on our new platform, which we’ve been working on for 18 months.”
“It’s essentially a platform for financial sovereignty in crypto,” he said. “A way to hold, send, receive, track, trade, all crypto assets across chains without custody. Unlike a Coinbase which is holding your money, Shapeshift doesn’t. Ultimately crypto is cool because it allows people the option to take responsibility of their own money and their own finances.”
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at@OscarWGrut.