Coinbase Set to Launch First Crypto Derivatives Product for Retail Traders

Coinbase Set to Launch First Crypto Derivatives Product for Retail Traders

Coinbase, the world’s largest cryptocurrency exchange by volume, is launching the first cryptocurrency derivatives product for retail traders.

This new derivative is dubbed Coinbase Derivatives Exchange, formerly FairX, later this month in the hopes of attracting more retail traders.

Coinbase Derivatives Exchange hopes to capitalize on a $3 trillion global market by providing traders with hedging options.

According to a statement sent to CoinDesk, the CFTC-regulated futures exchange will launch its derivatives product, Nano Bitcoin futures (BIT), on June 27. “The crypto derivatives market represents $3 trillion in volume globally, and we believe that additional product development and accessibility will unlock significant growth,”  the statement reads in part.

The exchange platform also expects regulatory approval on its futures commission merchant (FCM) license to offer margin futures contracts for its clients.

The launch comes as the cryptocurrency market struggles to recover – Ethereum, for example, accelerated 6.86 percent to $1,160.32. In addition, Ethereum recorded 6% gains in the last seven trading sessions. While Bitcoin gained 4.17 percent in the previous 24 hours to reach $21,252, bringing its one-week gains to 2.56 percent.

The global cryptocurrency market cap was $942.31 billion, up 4.57 percent in the last 24 hours. However, total cryptocurrency trading volume fell 7.46% to $61.55 billion, owing to the dramatic failures of Terra’s LUNA, crypto lender Celsius, and crypto fund Three Arrows Capital (3AC). Bitcoin’s price has dropped about 56% this year, while Ethereum’s native token has fallen about 70%.

Coinbase acquired FairX earlier this year to launch cryptocurrency derivatives products. After receiving regulatory approvals in late 2020, FairX launched its futures exchange platform in May 2021.

How Derivatives Products Works

Futures contracts are smaller in size, require less upfront capital than traditional bitcoin futures products, and can be used as a hedge for institutional and retail traders’ trading strategies. According to the statement, “at 1/100th 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 the US regulated crypto futures markets.”

Notwithstanding, everyone is not considering derivatives to be a product appropriate for retail traders. Recently, a senior Dutch financial regulator stated that trading in crypto derivatives should be limited to wholesale markets, citing the risks of manipulation and other criminal activity. In addition, the Financial Conduct Authority (FCA) of the United Kingdom banned crypto derivatives for retail consumers in 2020, claiming that the products are unsuitable due to their risks.

Moreover, large banks such as Nomura, Goldman Sachs, and JPMorgan have already begun trading crypto derivative contracts, allowing their clients to trade the cryptocurrency market’s volatility while protecting themselves from downside risks.

According to the statement, the BIT futures will initially be available for trading through several leading broker intermediaries, including retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate, as well as clearing firms ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam, and Wedbush.