Coinbase, amidst ongoing legal turmoil, has secured regulatory endorsement to launch cryptocurrency futures trading for retail customers within the United States. This nod arrives despite the exchange facing a legal lawsuit from authorities over alleged violations of securities regulations.
The company, on Wednesday, revealed that the National Futures Association (NFA), a self-regulatory body overseeing the US derivatives sector, has granted permission for small-scale investors to engage in futures trading on digital tokens such as Bitcoin, all within its trading platform.
The announcement promptly propelled Coinbase’s stock, causing it to surge by as much as 3.3% in New York. However, the gains subsequently retreated, resulting in a 1.4% dip. This regulatory green light marks a rare positive development for the San Francisco-based firm, which has been embroiled in confrontations with American regulators for the better part of this year.
The Securities and Exchange Commission (SEC) lodged accusations in June, asserting that Coinbase had offered unregistered securities and operated as an unregistered broker, national securities exchange, and clearing agency. Countering these claims, Coinbase has vehemently denied any wrongdoing and vowed to contest the allegations.
Of notable significance, the NFA’s decision represents the inaugural instance wherein a cryptocurrency entity has been recognized as a Futures Commission Merchant (FCM). Consequently, Coinbase enters the competitive arena, rivaling traditional futures brokers like Interactive Brokers. Previously, the platform had restricted futures trading to institutional investors.
Christopher Perkins, President of crypto investment firm Coinfund and former Head of OTC Clearing at Citigroup, characterized the NFA’s approval as “a significant development.” He highlighted that post-2008 financial crisis regulations had led to fewer entities assuming the FCM role, concentrating this function within a handful of prominent banks. Furthermore, traditional market infrastructure struggles to match the agility and volatility inherent in cryptocurrency markets.
Perkins noted, “Crypto market participants have faced challenges, unable to access derivative markets for risk hedging, especially in a manner that safeguards and isolates their collateral.” He emphasized that with exchanges like FTX and Celsius experiencing counterparty risks, Coinbase stepping in to address this void represents a monumental achievement.
Derivatives markets dominate nearly 75% of daily trading on cryptocurrency markets, with transactions worth around $2 billion transacting daily according to CCData. While regulated platforms like CME Group in the US offer cryptocurrency futures, they hold a modest 2% market share. A majority of trades are executed on international exchanges such as OKX and Huobi.
Greg Tusar, Coinbase’s Head of Institutional Product, hailed this development as a “critical milestone” that underscores the platform’s commitment to operating as a regulated and compliant business.
Simultaneously, Coinbase is also embroiled in a defense of its staking business, facing opposition from several American state regulators. Numerous regulators have issued cease and desist orders against the staking activity.
In the staking process, users lock their cryptocurrency holdings within their exchange wallet for a predetermined period. They grant the exchange permission to stake the asset on alternative cryptocurrency projects offering interest or yield.
