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Coinbase has secured regulatory approval to offer crypto futures for retail customers in the US, even as the cryptocurrency exchange faces a lawsuit from authorities alleging it has violated securities laws.
The company said on Wednesday that the National Futures Association, a self-regulatory body for the US derivatives industry, had given permission for small investors to trade futures on tokens such as bitcoin on its market.
The approval pushed Coinbase shares up as much as 3.3 per cent in New York, although they later fell back to trade 1.4 per cent lower. It also marks a rare victory for the San Francisco group, which has spent the majority of this year clashing with American regulators.
In June the Securities and Exchange Commission charged the exchange with offering unregistered securities and operating an unregistered broker, national securities exchange and clearing agency. Coinbase denies the charges and has said it will fight the case.
The NFA move also marks the first time a crypto group has been designated a futures commission merchant, or FCM, and puts the company in competition with traditional futures brokers like Interactive Brokers. The exchange had previously limited futures trading to institutional investors.
Christopher Perkins, president of crypto investment firm Coinfund and former head of OTC clearing at Citigroup, described the NFA approval as “a big deal”.
He pointed out that fewer brokers could take on the role of an FCM as post-2008 crisis rules made the industry less profitable and concentrated it in the hands of fewer large banks. Moreover, traditional markets infrastructure could not keep up with the speed and volatility of crypto markets.
“This has left crypto market participants in a bind — unable to access derivative markets to hedge risk, especially in a way that segregates and protects their collateral,” Perkins noted.
“As we’ve seen in crypto, we’ve had issues with counterparty risk with FTX, Celsius et cetera . . . for someone like Coinbase to step into the void, that’s a huge win,” he said.
Derivatives markets account for nearly three-quarters of daily trading on crypto markets. Typically deals worth around $2bn a day change hands, according to CCData. Although regulated exchanges such as the US’s CME Group offer crypto futures, it has only a 2 per cent market share and the majority of deals take place on overseas exchanges such as OKX and Huobi.
“This is a critical milestone that reaffirms our commitment to operate a regulated and compliant business,” said Greg Tusar, head of institutional product at Coinbase.
Coinbase is also defending its staking business against a swath of American state regulators, several of which have issued cease and desist orders against the activity.
In staking, users lock their crypto holdings in their crypto exchange wallet for a set period but give permission for the exchange to stake the asset on other crypto projects that offer interest or a yield.