LONDON, ENGLAND – NOVEMBER 09: On this photo illustration, a flipped version of the Coinbase logo is reflected in a cell phone screen on November 09, 2021 in London, England. The cryptocurrency exchange platform is to release its quarterly earnings today. (Photo illustration by Leon Neal/Getty Images)
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Coinbase plans to supply crypto-linked derivatives within the European Union, and it’s planning to accumulate an organization with a license to achieve this.
The U.S. cryptocurrency exchange told CNBC exclusively that it entered into an agreement to purchase an unnamed holding company which owns a MiFID II license.
MiFID II refers back to the EU’s updated rules governing financial instruments. The EU updated the laws in 2017 to handle criticism that it was too focused on stocks and didn’t consider other asset classes, like fixed income, derivatives and currencies.
It’s a part of a long-standing ambition by Coinbase to serve skilled and institutional customers.
The corporate, which began 12 years ago, has been looking for to expand its offering to institutions corresponding to hedge funds and high-frequency trading firms during the last several years, trying to profit from the much higher sizes of transactions done by these sorts of traders.
If and when Coinbase completes the deal, the move would mark the primary launch of derivatives trading by the corporate within the EU.
With a MiFID II license, Coinbase will find a way to start offering regulated derivatives, like futures and options, within the EU. The corporate already offers spot trading in bitcoin and other cryptocurrencies.
The deal is subject to regulatory approval and Coinbase expects it’s going to close later in 2024.
“This license would help expand access to our derivatives products by allowing Coinbase to supply them to eligible European customers in select countries across the EU,” Coinbase said in a blog post, which was shared exclusively with CNBC on Friday.
“Because the industry leader in trusted, compliant services and products, we aim for the very best standards for regulatory compliance, and before operationalizing any license or serving any users, this entity must achieve our Five-point Global Compliance Standard.”
Coinbase said it could look to stick to rigorous compliance standards which can be upheld within the EU, including requirements related to combating money laundering, customer transparency and sanctions.
The corporate said it’s committed to making sure a five-point global compliance standard, supported by a team of greater than 400 professionals with experience at agencies including the FBI and Department of Justice.
“We now have an extended road ahead before finalizing the acquisition and operationalizing the EU MiFID licensed entity, but that is an exciting step forward in our efforts to expand access to our international derivatives offerings and produce a more global and open economic system to 1 billion people all over the world,” Coinbase said in its blog post.
A key battleground
Derivatives may very well be a vital battleground for Coinbase. In keeping with the corporate, derivatives make up 75% of overall crypto trading volumes. Coinbase has an extended approach to go to compete with its larger rival Binance, which is a large player out there for crypto-linked derivatives, in addition to firms like Bybit, OKX and Deribit.
In keeping with data from CoinGecko, Binance saw trading volume of greater than $56.6 billion in futures contracts previously 24 hours. That is seismically larger than the quantity of volume done by Coinbase. Its international derivatives exchange did $300 million of futures trading volume within the last 24 hours.
Coinbase doesn’t currently offer crypto derivatives products within the U.K., where they’re prohibited. The Financial Conduct Authority banned crypto-linked derivatives in January 2020, saying on the time they’re “ill-suited” for retail consumers resulting from the harm they pose.
Coinbase currently offers trading in bitcoin futures and ether futures within the U.S., and bitcoin futures, ether futures, “nano” ether futures and West Texas Intermediate crude oil futures in markets outside the U.S.
Derivatives are a form of financial instrument that derive their value from the performance of an underlying asset.
Futures are derivatives that allow investors to take a position on what an asset might be price at a later time limit. They’re generally considered riskier than spot markets in digital assets given the notoriously volatile nature of cryptocurrencies like bitcoin, and using leverage, which might significantly amplify gains and losses.
The corporate made its first move into derivatives in May, with the launch of a world derivatives exchange in Bermuda. And the corporate debuted crypto derivatives within the U.S. in November after receiving regulatory approval from the National Futures Association.
Coinbase had reportedly considered acquiring FTX Europe, the European entity of the now-collapsed crypto venue, but subsequently shelved the thought, based on reporting from Fortune. CNBC has not been capable of independently confirm Fortune’s reporting.
Expanding beyond U.S.
The move into derivatives continues Coinbase’s expansion drive in markets outside of the U.S.
In October, the firm picked Ireland as its primary regulatory base within the EU ahead of an incoming package of crypto laws often known as Markets in Crypto-Assets (MiCA), and submitted an application for a single MiCA license, which it hopes to acquire by December. 2024 when the principles are slated to be fully applied.
Coinbase also recently obtained a virtual asset service provider license from France, which supplies it permission to supply custody and trading in crypto assets within the country.
