Coinbase launches offshore crypto derivatives
Coinbase Global (COIN), the parent company of the largest crypto exchange in the United States, launched a new crypto derivatives exchange in Bermuda to trade products that are not allowed in the United States due to a lack of regulatory certainty.
Important takeaways
- Coinbase has opened a new international exchange for trading perpetual crypto futures in Bermuda.
- Perpetual futures are derivative contracts with no expiration date and are not permitted in the United States
- Coinbase’s offering is only for institutional investors outside the US via an API.
- For now, the exchange offers perpetual trading of Bitcoin and Ether futures with up to 5x leverage.
- Coinbase is the latest on the list of crypto exchanges looking offshore for expansion as the regulatory environment in the US is seen as unfavorable by the industry.
Coinbase’s new exchange will allow qualified institutional customers outside the US to trade perpetual crypto futures – a type of derivative contract that has no expiration date.
The Commodities Futures Trading Commission (CFTC) does not regulate cryptocurrency perpetual futures trading in the United States, and exchanges that offer the product are typically not registered with the CFTC. The regulator has cracked down on several crypto platforms, including Binance, for offering perpetual contracts.
Coinbase’s perpetual contracts will offer up to 5x leverage and will be settled in USD Coin (USDC), a stablecoin backed by Circle.
Coinbase said the international exchange will provide more opportunities and liquidity for its customers, as well as promote innovation and growth in the global crypto ecosystem.
According to the crypto exchange giant, perpetual futures trading accounted for approximately 75% of global crypto exchange volume in 2022. Coinbase International Exchange will initially only be accessible via API, meaning it will not have a dedicated app or website for users.
Bitcoin and Ethereum perpetual futures were listed for trading on the Coinbase International Exchange early Tuesday.
Offshore Move follows regulatory battle
The launch of Coinbase International Exchange comes at a time when various crypto exchanges and services, such as Bittrex and Binance, are facing increased regulatory scrutiny and uncertainty in the United States. Bittrex discontinued its operations in the country due to the regulatory climate.
Coinbase CEO Brian Armstrong has also expressed his frustration with the US regulators and previously hinted at the possibility of moving the company if the situation does not improve, citing the lack of clear and consistent rules for the sector.
While Coinbase’s announcement of its new exchange highlights the current regulatory environment in the US as “a disappointing trend”, the move to Bermuda is being labeled as an “expansion” rather than a departure from the US
Coinbase recently filed a lawsuit against the US Securities and Exchange Commission in an effort to gain more regulatory clarity regarding the exchange’s operations in the country. And last week, Coinbase published a video response to the Wells Notice they received from the SEC earlier this year.
Notably, Coinbase and its executives have also been hit with two new lawsuits this week. The exchange is accused of privacy violations related to the collection of biometric data in Illinois and some of its managers and other insiders are said to have sold shares based on inside information before it went public in April 2021.
Coinbase reports first quarter earnings on May 4.
