In a noteworthy triumph for the crypto realm and another step forward towards global regulation, the Coinbase regulatory approval will lead to the introduction crypto futures trading options to its retail customers in the United States. This achievement comes at a time when Coinbase is grappling with legal issues, including a lawsuit filed by authorities accusing the exchange of violating securities laws.
Announced on Wednesday, Coinbase revealed that it had received authorisation from the NFA (National Futures Association), a self-regulating entity overseeing the derivatives sector in the US, to facilitate futures trading for small-scale investors on its platform. This development prompted a momentary surge in Coinbase’s stock value, escalating by up to 3.3 percent on the New York stock market. This regulatory milestone stands as a rare victory for the San Francisco-based company, which has predominantly been embroiled in regulatory clashes with US authorities throughout the year.
Coinbase’s legal skirmishes include a lawsuit filed by the SEC (Securities and Exchange Commission) in June. The SEC accused the exchange of peddling unregistered securities and functioning as an unregistered broker, national securities exchange, and clearing agency. Coinbase vehemently contests these allegations and has announced its intention to contest the charges in court.
The approval granted by the NFA is not only a significant achievement for Coinbase but also marks the first instance of a cryptocurrency entity being designated as a futures commission merchant (FCM). This designation positions Coinbase in direct competition with traditional futures brokerage firms, such as Interactive Brokers. It is noteworthy that Coinbase had previously limited its futures trading services to institutional investors.
Christopher Perkins, the President of Coinfund, a crypto investment firm, and former head of OTC clearing at Citigroup, commented on the NFA’s decision, deeming it as “a major development.” He emphasised that the post-2008 financial crisis regulations rendered the FCM role less lucrative, resulting in fewer entities being able to assume this role. Moreover, the conventional infrastructure of traditional financial markets struggles to cope with the rapid pace and volatility inherent in the cryptocurrency sector. Perkins noted the challenges that crypto market participants have faced in accessing derivative markets to mitigate risk, making Coinbase’s entry into this void a substantial victory.
Derivatives markets hold a commanding share, accounting for nearly 75 percent of daily trading activity within the cryptocurrency sphere. On an average day, deals worth approximately $2 billion are transacted, as reported by CCData. While regulated exchanges like the US’s CME Group offer cryptocurrency futures, they only hold a 2 percent market share. The bulk of trading transactions are executed on overseas exchanges such as OKX and Huobi.
Greg Tusar, Coinbase’s Head of Institutional Product, hailed the NFA’s approval as a “critical milestone” that underscores the exchange’s dedication to maintaining a regulated and compliant business environment.
This regulatory accomplishment is also viewed by various crypto industry observers as a considerable triumph for Coinbase and the broader cryptocurrency realm, particularly in light of the SEC’s claims of the exchange’s non-compliance with registration requirements. Avichal Garg, the founder of investment management firm Electric Capital, questioned the inconsistency between Coinbase’s registration with the CFTC (Commodity Futures Trading Commission) and the SEC’s assertion of Coinbase’s alleged aversion to registration efforts.
Brian Quintenz, the former Commissioner of the CFTC and now the Policy Head at crypto investment firm a16z, highlighted the potential for both customer welfare and technological innovation when regulatory agencies engage in constructive dialogues about emerging technologies.
Meanwhile, Brian Armstrong, CEO of Coinbase, lauded the NFA’s approval as a pivotal moment in enhancing clarity regarding cryptocurrency regulations in the US.
Coinbase is simultaneously contending with challenges to its staking operations, with several American state regulators issuing cease and desist orders against the practice. Staking involves users depositing their cryptocurrency holdings within their exchange wallet for a predetermined duration while granting permission for the exchange to engage in staking those assets in other cryptocurrency projects that offer interest or yield.
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