Coinbase Secures Regulatory Approval for Crypto Futures Trading

Coinbase cryptocurrency exchange has recently gained regulatory approval to introduce regulated crypto futures trading for its US retail customers, sparking a surge of up to 5% in its stock price before Wednesday’s market opening.

This approval was granted by the National Futures Association (NFA), a self-regulatory entity appointed by the Commodity Futures Trading Commission (CFTC), marking a pivotal step forward for the country’s largest crypto exchange.

Coinbase Regulatory Triumph Amidst Legal Battle with SEC

As Coinbase navigates its legal battle with the Securities and Exchange Commission (SEC) in the Southern District of New York, accusing the platform of operating as an unregistered securities exchange and broker, this regulatory green light holds strategic significance.

The central point of contention hinges on whether specific crypto assets should be classified as securities or commodities within the United States. Coinbase recently sought to dismiss the SEC’s lawsuit by drawing an analogy between the cryptocurrencies it facilitates and collectible items like baseball cards, asserting that they are not typical investment securities.

Despite the ongoing lawsuit, Coinbase’s stock has remarkably surged by 123% this year. It should be noted, however, that the stock experienced a dip following the release of its earnings report earlier this month.

Coinbase’s Strategic Maneuver

Coinbase initially applied for regulatory approval to introduce regulated crypto products shortly after its IPO two years ago. The acquisition of FairX, a CFTC-regulated futures exchange, in 2022 paved the way for its expansion into the realm of derivatives trading, rebranding the acquired platform as the Coinbase Derivatives Exchange.

While already offering bitcoin and ether futures trading for institutional investors, Coinbase’s plans extend to spinning off a derivatives platform tailored to non-US citizens.

Faryar Shirzad, Coinbase’s Chief Policy Officer, lauded the NFA’s recent approval, stating that it signifies a significant milestone towards establishing federal regulatory oversight over crypto markets.

Greg Tusar, Vice President of Institutional Product at Coinbase, emphasized that the platform is the pioneer in offering regulated crypto futures and spot crypto trading exclusively to US investors.

Tusar highlighted the importance of a CFTC-regulated crypto derivatives market in propelling substantial growth and broadening participation in the cryptoeconomy. Over the coming months, Coinbase is set to furnish its US customers with comprehensive details on accessing the forthcoming futures products.

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Derivatives products hold the potential to enable investors to trade with leverage, requiring a smaller upfront investment compared to traditional spot crypto trading. This tool can also be used to undertake both long and short positions based on projected cryptocurrency performance.

The Chicago Mercantile Exchange (CME) already provides bitcoin and ether futures.

Moreover, derivatives products offer crypto trading platforms a strategic means to attract customers, increase revenues, and bolster their share of the industry’s overall trading volume.

Notably, the global crypto derivatives market accounts for approximately 75% of the total crypto trading volume worldwide.

In recent years, offshore exchanges like Binance and the now-defunct FTX managed to capture market share from Coinbase by offering a combination of conventional futures and popular perpetual futures and options trading.