Coinbase disclosed to CNBC that it has sealed a deal to acquire a proprietorship which owns a Mifid II license. This license will enable Coinbase to introduce governed derivatives, such as futures, to its EU customers in addition to its current spot trading in bitcoin and other digital currencies. Derivatives could be a crucial point of contention for Coinbase, making up approximately 75% of crypto trading amounts.
Coinbase has announced plans to offer crypto-linked derivatives in the European Union, by acquiring a holding company with a license to do so under the updated MiFID II regulations. These regulations, implemented in 2017, were created to provide financial transparency across different asset classes, such as stocks, bonds, derivatives and currencies. Coinbase has long aimed to provide institutional and professional traders with their services, and this new endeavor is a step towards making this a reality. When the deal is finalized, it will be the first time Coinbase offers derivatives in the EU. A MiFID II license would authorize the company to offer futures and options in select countries across the EU. This expansion is subject to regulatory approval, and Coinbase predicts it will close later in 2024. Before operationalizing the license, Coinbase noted that it must meet their Global Compliance Standard, which promotes the most reliable, secure and compliant products and services.
Coinbase revealed it would pursue compliance practices that keep in step with EU regulations regarding the prevention of money laundering, clarity for customers, and sanctions. The company is determined to maintain a five-point global compliance code, backed by an experienced staff of more than 400 individuals who come from organizations like the FBI and Department of Justice. Coinbase referred to the move in a blog post as a significant stride towards expanding international access to its derivative services and the chance to provide a more accessible and open financial system to 1 billion people around the world.
Derivatives could be a key area of competition for Coinbase. According to the firm, derivatives account for 75% of total crypto trading activity. While Coinbase has a long way to go to be able to challenge its larger rival Binance, which is a notable part of the crypto derivatives market as well as players like Bybit, OKX and Deribit, the latter's trading volume in futures contracts was over $56.6 billion in the last 24 hours, significantly more than Coinbase's $300 million of futures trading in the same amount of time.Moreover, Coinbase currently does not offer derivatives in the U.K., as they were banned by the Financial Conduct Authority (FCA) in January 2020 on the basis that they are “ill-suited” for retail consumers due to the harm they pose. Though, the company provides trading in bitcoin and ether futures in the U.S., and bitcoin, ether, 'nano' ether and West Texas Intermediate crude oil futures beyond American borders.Derivatives are a type of financial product that derives its value from the performance of an underlying asset, with futures being a form of derivatives that enable investors to anticipate the worth of an asset at a later date. These are generally more perilous than spot markets in digital assets, given the volatility of cryptos such as bitcoin and the usage of leverage, which can drastically increase gains and losses.
In May, the company initiated its foray into derivatives with the establishment of an international derivatives exchange in Bermuda. In November, following authorization from the National Futures Association, Coinbase officially presented crypto derivatives in the U.S. Fortune reported that Coinbase had looked into buying FTX Europe, an organization within the now-defunct crypto platform, but subsequently abandoned the project. CNBC has yet to verify Fortune's reporting.
Coinbase has continued to pursue markets outside of the U.S., as it has been doing so actively over the past year when facing tougher times locally. The firm is currently the subject of a lawsuit filed by the U.S. Securities and Exchange Commission which claims that the company has violated securities laws. Having chosen Ireland as its primary regulatory base in the EU before the arrival of Markets in Crypto-Assets in October, Coinbase has applied for a single MiCA license which it is aiming to receive by 2024. On top of that, Coinbase obtained a virtual asset service provider license from France, allowing it to provide custody and trading services for crypto assets in the country.
top of page
bottom of page
Comments