Coinbase receives approval to allow US investors to trade cryptocurrency futures. The news that Coinbase Global (COIN) received regulatory approval to offer US retail customers regulated crypto futures in the coming months pushed its stock up as much as 5% before Wednesday’s market open.
National Futures Association (NFA), a self-regulatory organization designated by the Commodity Futures Trading Commission (CFTC), has granted the largest cryptocurrency exchange in the country permission to operate.
Coinbase is engaged in litigation with the Securities and Exchange Commission in the Southern District of New York. According to the federal securities regulator, Coinbase operates as an unregistered securities exchange, merchant, and clearing agency.
The case will presumably hinge on whether specific crypto assets should be classified as securities or commodities in the United States. This month, Coinbase urged a US judge to dismiss the lawsuit, arguing that the cryptocurrencies sold on its exchange are more comparable to baseball cards than investment securities.
Despite the SEC lawsuit, its stock is up 123% year-to-date but has declined since reporting earnings earlier this month. Coinbase applied for authorization to offer regulated crypto products shortly after its IPO two years ago. It acquired the CFTC-regulated futures exchange FairX in 2022 and renamed Coinbase Derivatives Exchange.
Since then, the company has introduced bitcoin and ether futures trading for institutional investors. It also announced intentions earlier this year to spin off a derivatives platform for non-US citizens.
Coinbase’s chief policy officer, Faryar Shirzad, said that the NFA’s new sanction to offer crypto futures to US investors “marks a major milestone in bringing federal regulatory oversight to the crypto markets.”
Greg Tusar, vice president of institutional products at Coinbase, stated in a blog post that Coinbase is the first cryptocurrency-only platform to provide US investors with regulated crypto futures products and spot crypto trading.
“Access to a CFTC-regulated crypto derivatives market is essential to unlocking significant growth and enabling broader participation in the crypto economy,” explained Tusar.
In the coming months, Coinbase will provide US consumers with additional details regarding accessing the platform’s future products.
Unlike spot cryptocurrency trading, derivatives enable investors to invest with leverage while requiring a smaller initial outlay. Using futures products, investors can also take long or short positions on the future performance of a cryptocurrency. The Chicago Mercantile Exchange (CME) already provides futures contracts for Bitcoin and ether.
Derivatives products also provide crypto trading venues with a crucial means of attracting customers and increasing revenues, and controlling a more significant portion of the industry’s total trading volume.
The global crypto derivatives market accounts for approximately 75 percent of global crypto trading volume.
In the past, so-called offshore exchanges such as Binance, the world’s largest cryptocurrency exchange, and the now-defunct FTX could steal market share from Coinbase by offering traditional futures in addition to the more popular perpetual futures and options trading.