Coinbase is not a bank. Or a financial institution. If it were, it'd have a charter and licenses. It's a merchant just like any other. You give them money in exchange for goods. No different than iTunes.
It does not need to be licensed as a financial institution to be deemed as one. The courts can and will deem them that the company is subject to some of the rules and regulations governing the financial industry and up the charges against them when this enforced.
I am purposely not saying 'if'. Because there is no possibility of this not being brought to a judge on the behest of SEC themselves or a consumer complaint.
In layman terms:
(1)they buy and sell BTC on behalf of clients and charge the client for the transaction including their fees.
(2)they are an online payment processor of sorts.
They will need to follow more regulations than Paypal, as paypal is also a digital wallet of sorts, but while it provides a conversion, they technically do not trade(buy/sell currencies) on behalf of clients.
Bitcoin is not an official currency in the eyes of the law. Therefore, there are almost zero regulations that would apply to Bitcoin transactions, other than contract law.
You are right, botcoin is not a currency, but it is a security and it is traded on an exchange.
Here's the definition of a security [Securities Act of 1933, Section 2(a)(1)]:
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
I am purposely not saying 'if'. Because there is no possibility of this not being brought to a judge on the behest of SEC themselves or a consumer complaint.
In layman terms:
(1)they buy and sell BTC on behalf of clients and charge the client for the transaction including their fees.
(2)they are an online payment processor of sorts.
They will need to follow more regulations than Paypal, as paypal is also a digital wallet of sorts, but while it provides a conversion, they technically do not trade(buy/sell currencies) on behalf of clients.