Coinbase, a publicly traded cryptocurrency exchange in the US, recently announced via X (previously known as Twitter) that they have received regulatory approval from the US National Futures Association (NFA), under the directives of the Commodity Futures Trading Commission (CFTC). This endorsement will allow Coinbase to operate as a Futures Commission Merchant (FCM), offering federally-regulated cryptocurrency futures trading to qualified US clients.
Venturing into the Massive Derivative Market
As reported by The Block, Greg Tusar, the Vice President of Institutional Products at Coinbase, referred to this sanction as a “significant milestone.” The cryptocurrency derivative market represents approximately 75% of the global cryptocurrency trading volume, marking it as an essential point of entry for traders. One of the main advantages of cryptocurrency futures trading is that it allows users to trade using margin. This not only provides traders with leverage but also enables them to venture into the cryptocurrency market with lesser initial investment compared to traditional spot trading. Furthermore, with the ability to take both long and short positions, investors can utilize derivatives to manage the risks associated with their underlying crypto assets.It won’t be long before eligible clients can participate in futures trading through Coinbase Financial Markets.
Coinbase’s Long-Awaited Move
It’s worth noting that Coinbase has been preparing for this initiative for almost two years. As early as September 2021, Coinbase had submitted an FCM registration application to the NFA. Later that year, the company acquired FairX, a futures exchange regulated by the CFTC. In May of the following year, they officially launched their international exchange, CoinbaseIntExch, offering perpetual contract products for Bitcoin and Ethereum, primarily catering to third-party brokers, FCMs, and market makers. The exchange has already seen a nominal trading volume of nearly $7 billion this year, including $4.7 billion in Bitcoin futures and $2 billion in Ethereum futures.
This latest development signifies Coinbase’s strategic move to tap into the enormous potential of the derivatives market. By securing approval from top regulatory bodies, Coinbase not only solidifies its position as a key player in the crypto industry but also paves the way for more institutional and retail investors to engage in sophisticated trading mechanisms.
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