The Expansion of Coinbase: Offering Crypto-Linked Derivatives in the EU

Coinbase, the U.S. cryptocurrency exchange, has announced its plans to offer crypto-linked derivatives in the European Union (EU). In pursuit of this move, the company has entered into an agreement to acquire an unnamed holding company that possesses a MiFID II license. The EU updated the MiFID II legislation in 2017 to address the criticism that it was too focused on stocks and failed to consider other asset classes such as fixed income, derivatives, and currencies. Coinbase has expressed its long-standing ambition to serve professional and institutional customers, and this acquisition represents a significant step towards realizing that goal.

Expanding Derivatives Trading in the EU: A Milestone for Coinbase

If the acquisition is successfully completed, Coinbase will launch its derivatives trading in the EU for the first time. With a MiFID II license, the company will be able to offer regulated derivatives, including futures and options, to customers in select EU countries. Although Coinbase already provides spot trading in bitcoin and other cryptocurrencies, the addition of derivatives trading is expected to contribute to the company’s growth and attract a larger user base. However, it is important to note that the deal is subject to regulatory approval, and Coinbase anticipates that it will close later in 2024.

Coinbase has emphasized its commitment to establishing and adhering to rigorous compliance standards in the EU. The company aims to ensure a five-point global compliance standard, which entails measures to combat money laundering, ensure customer transparency, and adhere to sanctions requirements. To support these efforts, Coinbase boasts a team of over 400 professionals with prior experience at esteemed agencies such as the FBI and the Department of Justice. By prioritizing regulatory compliance, Coinbase aims to position itself as the industry leader in providing trusted and compliant products and services.

The Significance of Derivatives for Coinbase

Derivatives have emerged as a crucial component of cryptocurrency trading, accounting for 75% of overall trading volumes. Recognizing the importance of derivatives, Coinbase is keen on establishing its presence in this market segment. However, the company faces strong competition from larger players like Binance, as well as other firms such as Bybit, OKX, and Deribit. Binance, in particular, has seen trading volumes of over $56.6 billion in futures contracts within the past 24 hours, significantly surpassing Coinbase’s trading volume. Despite these challenges, Coinbase remains determined to expand its derivatives offerings and establish itself as a global leader in the financial system.

Coinbase’s push for international expansion comes as the company faces challenges within its domestic market. In addition to targeting the EU market, Coinbase has chosen Ireland as its primary regulatory base ahead of the implementation of the Markets in Crypto-Assets (MiCA) regulations. The company has also applied for a single MiCA license, which it anticipates obtaining by December 2024. Furthermore, Coinbase has obtained a virtual asset service provider license from France, enabling it to offer custody and trading in crypto assets within the country.

Coinbase’s plans to offer crypto-linked derivatives in the EU mark a significant milestone in the company’s expansion strategy. With the acquisition of a holding company that possesses a MiFID II license, Coinbase aims to tap into the institutional market and cater to the needs of professional traders. By adhering to stringent compliance standards and prioritizing regulatory requirements, Coinbase seeks to establish itself as a leader in providing trusted and compliant cryptocurrency products and services. While competition in the derivatives market remains fierce, Coinbase remains committed to its goal of expanding access to its international derivatives offerings and creating a more inclusive global financial system.

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