Coinbase, the leading American crypto exchange, has received regulatory approval from the National Futures Association (NFA) to offer Bitcoin (BTC) and Ethereum (ETH) futures contracts to eligible customers in the United States. This approval makes Coinbase the first native crypto company to provide both spot and derivatives trading services directly to customers.

The NFA, which is a self-regulatory organization under the Commodities Futures Trading Commission (CFTC), oversees the country’s derivatives industry, including on-exchange traded futures. Coinbase has described this milestone as a “critical milestone” and highlighted that it has met rigorous requirements to obtain the approval.

Coinbase’s Journey to Derivatives Trading

In September 2021, Coinbase submitted its Futures Commission Merchant (FCM) application to regulators, and after two years of deliberations, it has now been granted the license to engage in futures trading officially. The company has already laid the groundwork for its derivatives offering by acquiring FairX, now known as the Coinbase Derivatives Exchange, which has accumulated substantial liquidity and facilitated significant trading volumes in BTC and ETH futures.

Coinbase has previously announced its intentions to launch BTC and ETH futures trading specifically designed for institutional investors. The company believes that the derivatives market plays a crucial role in the crypto industry, generating approximately 75% of the entire trading volume worldwide.

Legal Challenges and Future Outlook

While Coinbase celebrates its regulatory approval for futures trading, it also faces legal challenges. The US Securities and Exchange Commission (SEC) filed a lawsuit against the company in June, alleging that it operated as an unregistered exchange in the country.

Nevertheless, Coinbase’s foray into the derivatives market marks a significant achievement for the company and opens up new opportunities for its customers to access leveraged trading in the crypto market.

FAQs

What is Coinbase?

Coinbase is a leading American cryptocurrency exchange that provides a platform for buying, selling, and storing various cryptocurrencies.

What is futures trading?

Futures trading involves buying or selling financial contracts, known as futures contracts, that bind the parties to a future transaction at a pre-determined price. It allows investors to speculate on the price movements of an underlying asset without owning the asset itself.

What is the significance of Coinbase’s regulatory approval for futures trading?

This approval marks a significant milestone for Coinbase as it becomes the first native crypto company to offer both spot and derivatives trading services to customers. It demonstrates the maturation and growing legitimacy of the crypto industry.

What are the legal challenges faced by Coinbase?

Coinbase is currently dealing with a lawsuit filed by the US Securities and Exchange Commission (SEC), alleging that the company operated as an unregistered exchange in the country. The outcome of this legal battle will have implications for the regulatory landscape of the crypto industry.

What is the derivatives market?

The derivatives market refers to a financial market where investors trade financial contracts that derive their value from an underlying asset, such as cryptocurrencies. Derivatives can include futures, options, swaps, and forwards.

Is futures trading riskier than spot trading?

Futures trading can be riskier than spot trading due to the added element of leverage. Leverage allows traders to control a larger position with a smaller initial investment, but it also amplifies both gains and losses. Traders should exercise caution and understand the risks involved in futures trading before participating.

Can I trade futures on Coinbase?

Eligible customers in the United States will soon be able to trade Bitcoin (BTC) and Ethereum (ETH) futures on Coinbase’s platform. The company has obtained regulatory approval from the National Futures Association (NFA) to offer these futures contracts.

Can I trade other cryptocurrencies futures on Coinbase?

Currently, Coinbase has received approval to offer Bitcoin (BTC) and Ethereum (ETH) futures contracts. It remains unclear if the company plans to expand its futures trading offering to encompass other cryptocurrencies in the future.