In an effort to draw in more retail traders, Coinbase Derivatives Exchange, formerly known as FairX, is launching its first cryptocurrency derivatives product this month.
According to a press release given to CoinDesk, the futures exchange subject to CFTC regulation will introduce Nano Bitcoin futures (BIT) on June 27. "The crypto derivatives market represents $3T in volume worldwide and we believe that additional product development and accessibility will unlock significant growth," according to the statement.
In order to provide its customers with margined futures contracts, Coinbase stated that it is also awaiting regulatory approval for its own futures commission merchant (FCM) license.
The launch coincides with a period of extreme market volatility brought on by the dramatic failures of Terra's LUNA, cryptocurrency lender Celsius, and cryptocurrency fund Three Arrows Capital (3AC). This year, the price of Bitcoin has decreased by about 56%, while the price of ether, the native token of Ethereum, has decreased by about 70%.
To introduce cryptocurrency derivatives products, Coinbase earlier this year purchased FairX. After receiving regulatory approvals in late 2020, FairX launched its futures exchange platform in May 2021.
Futures contracts can be used as a hedge for trading strategies by institutional and retail traders alike because they are smaller in size and require less upfront capital than traditional bitcoin futures products. According to the statement, "at 1/100th of the size of a Bitcoin, it requires less upfront capital than traditional futures products and creates a real opportunity for significant expansion of retail participation in US regulated crypto futures markets."
Derivatives are not universally regarded as a product that retail traders should use, though. A senior Dutch financial regulator recently argued that trading in crypto derivatives should be limited to wholesale markets only due to the possibility of manipulation and other illegal activity.
The Financial Conduct Authority (FCA), a government watchdog in the United Kingdom, outlawed cryptocurrency derivatives for retail customers in 2020, claiming that the risks involved made the products unsuitable.
Large banks, like Nomura, Goldman Sachs, and JPMorgan, have started trading cryptocurrency derivative contracts, giving their clients a chance to profit from the market's volatility and guard against downside risks.
The BIT futures will initially be traded through a number of reputable broker intermediaries, including clearing firms ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam, and Wedbush, as well as retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate.
By fLEXI tEAM