Coinbase gains regulatory approval for U.S. crypto futures trading
After waiting for nearly two years, Coinbase has finally secured the regulatory endorsement allowing eligible U.S. customers to access crypto futures via its platforms.
The approval is granted by the National Futures Association (NFA), a self-regulatory entity chosen by the Commodity Futures Trading Commission (CFTC). This enables Coinbase to act as a Futures Commission Merchant (FCM), trading futures contracts like a market maker.
According to its announcement, this approval makes Coinbase the first crypto-focused platform in the U.S. to offer regulated and leveraged crypto futures alongside regular spot trading.
“Offering U.S. investors access to secure and regulated crypto futures is key to unlocking growth and enabling broader participation in the crypto economy,” said Andrew Sears, CEO of Coinbase Financial Markets.
Coinbase noted that 75 percent of global crypto trading involves futures, emphasizing the significance of the NFA’s approval, which Coinbase called a “watershed moment.”
“The ability to trade using margin gives customers leverage and access to the crypto market with less upfront investment than traditional spot trading,” the announcement said.
Brian Armstrong, the CEO of Coinbase, also commented that this approval is a significant step in providing regulatory clarity to the U.S. crypto landscape.
Today, Coinbase filed an application with the NFA to register as an FCM → Futures Commission Merchant.
This is the next step to broaden our offerings and offer futures and derivatives trading on our platforms.
👉 Goal: Further grow the cryptoeconomy.
— Coinbase 🛡️ (@coinbase) September 15, 2021
Moreover, using derivatives for long and short positions lets investors manage risks linked to their main crypto assets. Coinbase acquired FairX in 2022, formerly a CFTC-regulated futures exchange now known as the Coinbase Derivatives Exchange, to tap into these benefits. This platform is open to external brokers, FCMs, and market makers.
The company will share more information with its verified U.S. customers about accessing futures offerings in the next few months.
This move has also put Coinbase in a position usually held by traditional financial firms. Bitcoin futures are currently offered on the Chicago Mercantile Exchange (CME). CBOE Digital, a branch of the Chicago Board Options Exchange (CBOE), also received approval to launch leveraged bitcoin and ether futures in June.
CBOE initially launched bitcoin futures in 2017, which had high trading volumes. However, CBOE discontinued the product two years later due to limited demand.
Despite the announcement, COIN stock dropped 1.56 percent to $77.7 in after-hours trading, yet Coinbase shares have risen by 130 percent this year.
https://twitter.com/coinbase/status/1691751814004175204
Responses from the crypto community
Some experts in the crypto sector view this approval as a major regulatory success for Coinbase and the industry. This is particularly noteworthy as the U.S. Securities and Exchange Commission (SEC) had accused the exchange of evading product registration.
“If I were a judge, I’d wonder why somehow [Coinbase] manages to register with the [CFTC], yet the [SEC] claims that Coinbase is unwilling to do the hard work to register,” wrote Avichal Garg, founder of Electric Capital.
Former CFTC commissioner Brian Quintenz, who now holds a policy role at crypto investment firm a16z, noted that when regulators engage in constructive discussions about new technology, it benefits both customers and innovation.
Major moment for crypto regulatory clarity in the U.S.
This has been a multi-year process toward approval, and we're excited to finally be launching federally regulated crypto derivatives with margin to our U.S. customers.
When there is a clear path to register, we do. https://t.co/TxSOAIpoPj
— Brian Armstrong (@brian_armstrong) August 16, 2023
Meanwhile, Mizuho Securities analyst Dan Dolev said, as reported by Barron, “Since the global crypto derivatives market can be three to four times larger than spot, this approval increases Coinbase’s total addressable market.”
According to Jeff Sekinger, co-founder and president of Orca Capital, Coinbase is becoming a key platform for traders. He mentioned that the upcoming products will meet the demand and provide investors with increased exposure and flexibility.
Meltem Demirors, the chief strategy officer at CoinShares, described the current period as “exciting times in U.S. crypto markets,”, especially with the shift towards trading during U.S. hours.
