Greetings,
Coinbase Global (COIN) has announced that it has gained regulatory approval to introduce regulated crypto futures trading for its US retail customers in the upcoming months. This news has propelled its stock by up to 5% in pre-market trading on Wednesday.
The esteemed crypto exchange, the largest in the United States, has obtained the necessary clearance from the National Futures Association (NFA), a self-regulatory entity designated by the Commodities Futures Trading Commission (CFTC).
This development unfolds as Coinbase finds itself engaged in a legal battle with the Securities and Exchange Commission (SEC) in the Southern District of New York. The SEC alleges that Coinbase is operating as an unregistered securities exchange, broker, and clearing agency.
The crux of the matter is whether specific crypto assets should be classified as securities or commodities within the United States. Earlier this month, Coinbase submitted a request to a US judge to dismiss the lawsuit, asserting that the cryptocurrencies traded on its platform resemble collectibles like baseball cards more than investment securities.
Despite the ongoing SEC lawsuit, Coinbase’s stock has surged by an impressive 123% year-to-date, though it has experienced a decline since the release of its earnings report earlier this month.
Coinbase had initiated the process of obtaining approval to offer regulated crypto products shortly after its initial public offering (IPO) two years ago. In 2022, it acquired FairX, a futures exchange regulated by the CFTC, which has now been rebranded as the Coinbase Derivatives Exchange.
The company has subsequently introduced trading in bitcoin and ether futures tailored for institutional investors. Moreover, earlier this year, Coinbase revealed its intention to establish a separate derivatives platform targeted at non-US citizens.
The recent green light from the NFA for offering crypto futures to US investors is a pivotal achievement in terms of enforcing federal regulatory oversight over the crypto markets. According to Faryar Shirzad, Coinbase’s Chief Policy Officer, this development marks a significant milestone.
Greg Tusar, Vice President of Institutional Product at Coinbase, elaborated on the significance of this accomplishment in a blog post. He emphasized that Coinbase will become the first crypto-exclusive platform to provide regulated crypto futures products as well as spot crypto trading for US investors.
Tusar highlighted, “Access to a CFTC-regulated crypto derivatives market is essential to unlocking significant growth and enabling broader participation in the cryptoeconomy.”
In the forthcoming months, Coinbase will furnish its US customers with additional information concerning how they can access the platform’s futures products.
Derivatives products grant investors the ability to leverage their investments, requiring less initial capital compared to spot crypto trading. These products also allow investors to take both long and short positions on a cryptocurrency’s future performance. The Chicago Mercantile Exchange (CME) is already offering bitcoin and ether futures.
Derivatives products serve not only as a means for crypto trading venues to attract customers and enhance their revenues but also to command a larger portion of the industry’s total trading volume.
It’s noteworthy that the global crypto derivatives market constitutes approximately 75% of the worldwide crypto trading volume.
Over the years, offshore exchanges such as Binance, the world’s largest crypto exchange, and the now-defunct FTX, managed to seize market share from Coinbase by offering traditional futures alongside highly popular perpetual futures and options trading.
