Coinbase Gets Green Light to Offer Crypto Futures in the US

Coinbase Global (COIN), the leading crypto exchange in the US, has achieved a major milestone by obtaining regulatory consent to introduce crypto futures to its US retail clientele. This move is expected to significantly influence the crypto economy, allowing for greater participation and expansion.

Key Details:

• The National Futures Association (NFA), a self-regulating body appointed by the Commodity Futures Trading Commission (CFTC), granted this approval.

• This new endorsement marks Coinbase as the first crypto-exclusive platform to provide both regulated crypto futures products and spot crypto trading to US investors.

• The NFA’s consent comes about two years after Coinbase’s initial application to join the association in September 2021.

Courtroom Challenges

Simultaneously, Coinbase faces legal challenges as it confronts the Securities and Exchange Commission (SEC) in the Southern District of New York. Central to this case is the debate on categorizing certain crypto assets as securities or commodities. Coinbase has recently petitioned a US judge, asserting that the cryptocurrencies they offer are more analogous to collectible items rather than investment securities.

A Glimpse into the Past

Despite the ongoing lawsuit, Coinbase’s stock has demonstrated resilience, surging by 123% year to date. However, it saw a decline post their recent earnings report. After its IPO, Coinbase swiftly sought permission to provide regulated crypto products. Notably, in 2022, they procured the CFTC-regulated futures exchange FairX, which was subsequently renamed to Coinbase Derivatives Exchange. This acquisition has led to:

• The commencement of bitcoin and ether futures trading for institutional investors.

• Announcement of plans to establish a derivatives platform specifically for non-US citizens.

Industry Insights:

• The global crypto derivatives market constitutes nearly 75% of the global crypto trading volume.

• Competitors like Binance and the defunct FTX had previously secured market shares from Coinbase by offering traditional futures alongside popular perpetual futures and options trading.

Futures Trading and its Significance

Derivatives products such as futures enable traders to utilize leverage, allowing them to invest with a lesser initial capital than spot crypto trading. These products can also be used to speculate on the future performance of a cryptocurrency, either bullish or bearish. For exchanges, offering derivatives can attract customers and secure a larger share of the market’s total trading volume.

The Chicago Mercantile Exchange (CME) currently provides futures for Bitcoin and ether. Notably, earlier this year, the crypto division of Cboe Global Markets, Cboe Digital, secured approval from the CFTC to offer margined futures for the same.

Company Comments

Faryar Shirzad, Coinbase’s chief policy officer, remarked that this endorsement brings the crypto market closer to federal regulatory scrutiny. Meanwhile, Greg Tusar, vice president of institutional products at Coinbase, highlighted the platform’s unique position in providing regulated crypto futures products.

Furthermore, Andrew Sears, CEO of Coinbase Financial Markets, stressed that offering regulated crypto futures to US investors is instrumental in unlocking substantial growth and ensuring broader participation in the crypto sector.

Coinbase has committed to updating US customers about accessing their futures products in the forthcoming months.

Stock Movement

Post the announcement, COIN shares experienced a surge, opening up over 4% at $82.49 on the Nasdaq. The shares were later observed trading around $81.60, marking an approximate 3% increase, reflecting the market’s optimism and confidence in Coinbase’s new venture.

The Broader Implications

This milestone for Coinbase carries broader implications for the entire crypto industry, as it might pave the way for other cryptocurrency exchanges and platforms to seek and obtain similar regulatory approvals. The precedent set by such a leading platform can be a strong indicator for the market that regulatory bodies are increasingly recognizing and legitimizing cryptocurrency-related financial products.