Coinbase’s Grand Gamble: Betting on the Future of Cryptocurrency Futures

Coinbase, the largest cryptocurrency exchange in the United States, has finally been given the green light to provide cryptocurrency futures trading to eligible clients! This regulatory approval was granted to Coinbase Financial Markets Inc., a subsidiary of Coinbase, by the National Futures Association (NFA), which is authorized by the Commodity Futures Trading Commission (CFTC). This long-awaited approval allows Coinbase to operate as a futures commission merchant (FCM) and offer verified U.S. customers access to trade cryptocurrency on leverage.

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Greg Tusar, Coinbase’s Vice President of Institutional Product, hailed the approval as a significant achievement. He noted that Coinbase is the “first leader in the crypto industry” to offer both traditional spot crypto trading and regulated, leveraged crypto futures to its verified clients. This move is a response to the considerable demand for exposure to the cryptocurrency derivatives market, which accounts for roughly 75% of the total global crypto trading volume. This is great news for traders because the derivatives trading pairs allow customers to utilize leverage and gain entry to the crypto market with a smaller upfront investment compared to conventional spot trading. But even more importantly, derivatives enable investors to mitigate risks tied to their primary crypto assets by taking both long and short positions.

Coinbase intends to enable its customers to directly engage in futures trading via its Coinbase Financial Markets platform. This expansion into futures trading was made possible by Coinbase’s acquisition of FairX, a futures exchange regulated by the CFTC. FairX was subsequently rebranded as the Coinbase Derivatives Exchange and serves as a platform for third-party brokers, FCMs, as well as market makers. In recent years, Coinbase has managed to establish quite a substantial liquidity pool, demonstrating significant trading volumes in both BTC and ETH futures.

However, it is worth noting that Coinbase is currently grappling with legal issues in the United States. In fact, the company was sued by the Securities and Exchange Commission (SEC) in June on allegations of operating as an unregistered exchange, broker and clearing agency. In response to the SEC lawsuit, leading venture capital firms Andreessen Horowitz (a16z) and Paradigm filed a joint amicus brief in support of Coinbase. They criticized the SEC’s perceived overreach in regulation, citing its unpredictable and arbitrary actions that could impede the progress of blockchain technology in the United States. Coinbase itself submitted a motion to dismiss the lawsuit, arguing that the SEC’s approach diverged significantly from established legal frameworks.

Still, the main takeaway is that this is exciting news for regular crypto traders looking to start a trading account on the biggest O.G. crypto exchange out there. This new access to futures trading, combined with Coinbase’s reputable platform, deep liquidity pool and commitment to innovation, unlocks a more dynamic and diversified trading experience. Regular crypto traders can now explore advanced techniques and harness the potential of derivatives to navigate the ever-changing crypto landscape with increased confidence. And that’s always a good thing!

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Jeff Sekinger

Founder & CEO, Nurp LLC

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