The largest U.S. cryptocurrency exchange, Coinbase, has obtained regulatory approval to offer crypto futures trading services to qualified consumers in the United States. Coinbase Financial Markets Inc., a company division, announced that it had received authorization from the National Futures Association (NFA), a self-regulatory organization designated by the Commodity Futures Trading Commission (CFTC).
Greg Tusar, Coinbase’s VP of Institutional Product, hailed the approval as a “critical milestone” for the firm. He pointed out that Coinbase is the “first crypto-native leader” to provide both traditional spot cryptocurrency trading and regulated, leveraged crypto futures for verified customers.
The move comes as the global crypto derivatives market continues to grow. According to Tusar, crypto derivatives account for over 75% of global crypto trading activity and serve as a key entry point for traders. Margin trading, a feature of derivatives trading, allows users to gain exposure to the cryptocurrency market with less initial capital than is required for spot trading.
Tusar explained the advantages of derivatives: “Investors use derivatives to manage risk on their underlying crypto assets because they allow them to express long and short positions.”
The company disclosed that Coinbase’s customers will soon be able to access futures directly through Coinbase Financial Markets. This move will enable traders and investors to benefit from a wider range of financial instruments and increase their returns.
SEC’s Lawsuit Against Coinbase
However, it’s worth noting that Coinbase has faced regulatory challenges. In June, the Securities and Exchange Commission (SEC) filed a lawsuit against the firm for allegedly operating as an unregistered exchange, broker, and clearing agency.
Coinbase quickly responded, seeking to dismiss the action. The company argued that the SEC’s approach significantly departed from preexisting legal frameworks.
In support, Paradigm and Andreessen Horowitz (a16z) submitted an amicus brief in favor of Coinbase last week. In the document, the companies expressed concern about the SEC’s actions. They argued that “The SEC’s regulatory overreach, coupled with the unpredictability and arbitrariness of its actions, threatens the development of blockchain technology in the United States.”
Implications for the crypto industry
The approval from the NFA marks a significant step forward for Coinbase and the wider cryptocurrency industry. By allowing Coinbase to offer crypto futures trading, regulators recognize the growing importance of digital assets in the financial landscape. Consequently, this development will likely attract more institutional investors and traders to the crypto market, further legitimizing it as an investment asset class.
Moreover, the move will likely boost Coinbase’s revenues, as it can now tap into the lucrative and growing derivatives market. Additionally, this could spur other cryptocurrency exchanges to seek similar approvals, further expanding the options available to traders and investors.
Coinbase’s successful registration as an FCM represents a significant milestone for the company and the broader cryptocurrency industry. The move enables Coinbase to offer crypto futures trading to its customers, expanding their investment options and potentially increasing their returns. As the crypto market continues to grow and evolve, this development is a step towards greater legitimacy and recognition for digital assets.
