Coinbase Navigates Regulatory Waters with Notable Approval

Key Insights:

• Coinbase secures landmark FCM approval, setting a precedent in crypto regulations.
• Regulatory tides shift as CFTC and SEC showcase contrasting views on crypto’s status.
• With FCM, Coinbase gears up to challenge market giants like CME and CBOE.

Coinbase has achieved a significant milestone by securing regulatory approval. This decision sets the platform apart as the first native crypto entity to function as a Futures Commission Merchant (FCM). The backdrop to this approval is the ongoing legal dispute between Coinbase and the US SEC. The SEC had previously pointed fingers at Coinbase, asserting that the firm bypassed the essential registration of its products, potentially infringing upon federal securities laws.

The journey towards this approval was strewn with hurdles. It demanded two years of thorough examination before the National Futures Association (NFA) consented. Operating under the Commodities Futures Trading Commission (CFTC) umbrella, the NFA has now permitted Coinbase to roll out crypto futures contracts to the US populace.

The Regulatory Puzzle: CFTC’s View vs. SEC’s Stand

The crypto community has been active in drawing attention to the differing perspectives of the CFTC and the SEC regarding the regulatory framework of crypto. Avichal Garg, the driving force behind Electric Capital, shared his thoughts on X, previously known as Twitter. He highlighted the immense effort and time required to achieve FCM approval. If he were in the position to oversee the SEC-Coinbase case, he mentioned he would delve deeper into the SEC’s claims against Coinbase’s registration processes.

Getting an FCM via the @CFTC is a big deal. It takes years of work.

If I were a judge I'd wonder why somehow @coinbase manages to register with the @CFTC yet the @SECGov claims that Coinbase is unwilling to do the hard work to register. https://t.co/axDHt8ya3F

— Avichal – Electric ϟ Capital (@avichal) August 16, 2023

Brian Quintenz, formerly of the CFTC and now part of the crypto firm a16z, also shared his viewpoint. He emphasized the critical nature of maintaining an open dialogue between the tech sectors and regulatory bodies. In his opinion, such interactions are pivotal in promoting innovation while ensuring consumer safety. “Coinbase has shown a clear commitment to adhering to regulatory standards. Positive outcomes emerge when regulators and tech sectors engage in meaningful discussions,” Quintenz observed.

Coinbase’s Entry into the Traditional Trading Arena

With the FCM approval secured, Coinbase is gearing up to compete with traditional market behemoths like the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE). Both firms have carved a robust foothold in the US, offering futures contracts for Bitcoin and Ethereum.

In a recent statement, Coinbase provided insights into the sheer scale of the derivatives market, which encompasses approximately 75% of all trading volumes. CoinGecko had earlier revealed that the global directives market’s valuation is a staggering $3 trillion. Given these figures, market experts are optimistic about the potential growth and expansion of Coinbase’s market reach. “With the global crypto derivatives market being so vast, Coinbase’s potential market reach has seen a significant boost,” Dan Dolev from Mizuho Securities noted, as mentioned by Barron’s.

On the stock market side, the news subtly impacted Coinbase’s stock (COIN), which experienced a slight 1.56% decline. However, a more comprehensive view shows a promising trend, with Coinbase shares experiencing a robust growth of 130% this year.