Coinbase Global (COIN) has announced that it has obtained regulatory clearance to offer regulated cryptocurrency futures to retail customers in the United States in the upcoming months. This news caused its stock to surge by as much as 5% before the Wednesday market opening.
The largest cryptocurrency exchange in the country revealed that it obtained this permission from the National Futures Association (NFA), an organization that regulates itself and is designated by the Commodities Futures Trading Commission (CFTC).
This regulatory approval arrives as Coinbase faces off with the Securities and Exchange Commission (SEC) in a New York court. The federal securities regulator has accused Coinbase of functioning as an unregistered exchange for securities, a broker, and a clearing agency.
The core of the case will likely revolve around the classification of certain cryptocurrencies as either securities or commodities in the US. Earlier this month, Coinbase sought dismissal of the lawsuit, arguing that the cryptocurrencies traded on its platform are more akin to baseball cards than investment securities.
Despite the SEC lawsuit, Coinbase's stock has climbed 123% since the beginning of the year, though it has decreased after reporting its earnings earlier this month.
Coinbase sought approval to offer regulated cryptocurrency products soon after its initial public offering (IPO) two years ago. In 2022, it acquired FairX, a futures exchange regulated by the CFTC, which has since been rebranded as Coinbase Derivatives Exchange.
Since then, the company has introduced trading in futures for bitcoin and ether for institutional investors. Additionally, this year, it revealed intentions to establish a derivatives platform for individuals who are not US citizens.
The fresh authorization from the NFA to provide cryptocurrency futures to US investors is seen as a significant achievement in introducing federal regulatory oversight to the cryptocurrency markets, according to Coinbase’s Chief Policy Officer Faryar Shirzad.
Greg Tusar, the Vice President of Institutional Product at Coinbase, stated in a blog post that Coinbase is the inaugural platform exclusively focused on cryptocurrencies to present regulated cryptocurrency futures products and spot cryptocurrency trading for US investors.
Tusar further explained, “A CFTC-regulated market for cryptocurrency derivatives is crucial for unlocking substantial growth and enabling wider engagement in the cryptocurrency economy.”
In the approaching months, Coinbase will furnish US customers with more details about accessing the futures products on the platform.
Derivatives products provide investors with the ability to utilize leverage for investments, requiring less initial capital than spot cryptocurrency trading. These products also enable investors to adopt long or short positions on the anticipated performance of a cryptocurrency. The Chicago Mercantile Exchange (CME) already offers futures for bitcoin and ether.
Furthermore, derivatives products serve as an important avenue for cryptocurrency trading platforms to not only attract clientele and generate higher revenues but also to claim a larger share of the industry's overall trading volume.
The worldwide market for cryptocurrency derivatives accounts for roughly 75% of the global cryptocurrency trading volume.
Over the past years, offshore exchanges like Binance, the largest cryptocurrency exchange globally, and the now-defunct FTX managed to capture market share from Coinbase by providing conventional futures alongside more popular perpetual futures and options trading.
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