On Tuesday, Coinbase, a cryptocurrency exchange, revealed that it has been granted regulatory approval to introduce crypto futures to its customers in the US. This advancement could join two of Bitcoin’s markets, facilitating further adoption.
Coinbase Financial Markets, its newly registered CFTC merchant, will offer spot crypto trading and crypto futures. This is significant for Bitcoin futures ETFs, which were first established in 2021 and give investors exposure to contracts trading on CFTC-regulated exchanges. Though the futures contracts give the right to purchase or sell Bitcoin at a set rate in the future, they do not guarantee ownership of the coin itself.
Michael Saylor, founder and chairman of MicroStrategy, commented that Bitcoin futures ETFs are not an efficient way for institutions to gain exposure to Bitcoin. He added that they have been underperforming Bitcoin’s performance this year.
Stuart Barton, co-founder and CIO of Volatility Shares, believes that disparities between Bitcoin’s spot price and its futures contracts should be reduced as money flows between the two markets. He stated that having them in the same place will improve liquidity and arbitrage opportunities, and make the futures ETFs more similar to spot ETFs.
Spot Bitcoin ETFs, which track the coin’s price as issuers obtain it and distribute corresponding shares, have been highly anticipated in the crypto world for a long time. The SEC is considering various applications for this investment vehicle, which would enable institutions that cannot custody crypto to invest in Bitcoin by purchasing ETFs on a traditional stock exchange.
Christopher Perkins, president of CoinFund, commented that Coinbase’s newly approved venue is a major development. He believes that more institutions will likely become involved in trading futures as it gives them the opportunity to do so in a way that is compliant with regulations.
Coinbase Financial Markets has been approved to operate as a futures commission merchant, a broker that takes orders to buy and sell futures contracts for customers. However, due to the capital requirements and collateral demands that make crypto futures transactions too costly for most FCMs, it has been difficult for crypto-native market participants to find one that will accept them.
Perkins explained that Coinbase is entering a finance area dominated by big banks, yet these are effectively barred from crypto futures. He added that options for hedging risk in the US are limited to Bitcoin and Ethereum futures markets, and there is still uncertainty around whether Ethereum is a commodity or security.
Therefore, Coinbase’s ability to offer services as an intermediary for crypto futures could be a remedy to this issue. It could also help market participants hedge risk in a compliant manner, as well as open up access to derivatives markets.