Coinbase, the largest cryptocurrency exchange in the US, has received approval from the National Futures Association (NFA) to offer crypto futures and options trading to its retail customers. This is a significant milestone for the company and the crypto industry, as it opens up a new market for investors who want to bet on the price movements of digital assets without owning them.
What are crypto futures and options?
Crypto futures and options are derivatives contracts that allow traders to speculate on the future price of a cryptocurrency, such as bitcoin or ether. A futures contract is an agreement to buy or sell an asset at a predetermined price and date in the future. An option contract is similar, but it gives the buyer the right, but not the obligation, to buy or sell an asset at a specified price and date.
Crypto derivatives are popular among traders who want to hedge their risks, leverage their positions, or profit from volatility in the crypto market. According to research firm CCData, crypto derivatives trading volumes globally totaled about $1.85 trillion in July, representing almost 80% of the entire crypto market.
Why is this approval important?
Until now, Coinbase only offered crypto futures and options trading to its institutional clients, such as hedge funds and asset managers. Retail customers in the US had limited access to regulated crypto derivatives platforms, as most of them are based overseas or operate under different jurisdictions.
The NFA approval, which came nearly two years after Coinbase filed its application, will allow Coinbase to offer bitcoin and ether futures directly to eligible US customers through its platform. This will give them more choices and opportunities to participate in the crypto economy.
Coinbase said that offering US investors access to secure and regulated crypto futures is key to unlocking growth and enabling broader participation in the crypto economy. The company also said that this is a critical milestone that reaffirms its commitment to operate a regulated and compliant business.
How does this affect Coinbase’s legal battles?
The NFA approval is a major regulatory win for Coinbase, which has been facing legal challenges from the Securities and Exchange Commission (SEC) over its operations. In June, the SEC sued Coinbase and its rival Binance for allegedly operating illegally as unregistered securities exchanges. The SEC claims that Coinbase and Binance offer trading of tokens that are considered securities under US law, such as stablecoins and decentralized finance (DeFi) tokens.
Coinbase has denied the SEC’s allegations and argued that it follows all applicable laws and regulations. The company has also criticized the SEC’s enforcement-first approach, which it says could stifle innovation and drive crypto businesses out of the US. Coinbase CEO Brian Armstrong has said that more US crypto companies could move offshore due to a hostile regulatory environment.
The NFA approval shows that Coinbase has managed to secure the support of another US regulator, the Commodity Futures Trading Commission (CFTC), which oversees the derivatives market. The CFTC is widely seen as more crypto-friendly than the SEC, as it has granted licenses to several crypto derivatives platforms, such as Bakkt, ErisX, and LedgerX.
Coinbase said that under the supervision of the CFTC and NFA, it will be able to offer regulated futures in a manner that protects consumers and helps ensure that the US remains a center for digital innovation.