Coinbase exclusively informed CNBC that it had signed an agreement to acquire an unnamed firm, which holds a Mifid II license. With this license, Coinbase will be able to offer regulated derivatives such as futures to EU customers, apart from the spot exchange services for Bitcoin and other cryptocurrencies it already provides. The derivatives market is expected to be a crucial part of Coinbase's operations, accounting for about three-fourths of total crypto trading volumes.
Coinbase has stated in an exclusive CNBC report that they have entered into an agreement to acquire a holding company with a MiFID II license in order to offer crypto-linked derivatives in the European Union. MiFID II is the EU's updated legislation that addresses criticisms regarding its focus on stocks by taking into account other asset classes, such as currencies, derivatives and fixed income. As part of its long-term ambitions to serve professional and institutional customers, Coinbase has been expanding its products to institutions such as hedge funds and high-frequency trading firms, aiming to benefit from their large-scale transactions. If the company succeeds in the acquisition and obtains the regulatory approval, they will launch their first derivatives trading in the EU. The MiFID II license would enable them to begin offering futures, options and other regulated derivatives to eligible European customers in certain countries. Coinbase already offers spot trading in bitcoin and other cryptos, and it is dedicated to meeting the highest standards of regulatory compliance before commercially operating any license or serving any customers according to their five-point Global Compliance Standard.
Coinbase declared its intention to observe rigorous compliance standards, which are upheld in the EU, with regards to anti-money laundering, customer transparency and sanctions. The company also declared its commitment to a five-point global compliance standard, that is supervised by a team of more than 400 personnel possessing expertise from organizations such as the FBI and Department of Justice. "We have a long way to go until completing the acquisition and making the EU MiFID licensed entity operational, but this is a thrilling step in our mission to extend access to our worldwide derivatives offerings and make a more open and worldwide financial system accessible to 1 billion people worldwide," Coinbase voiced in its blog post.
Derivatives could be a key area of competition for Coinbase. Per the company, derivatives account for 75% of total crypto trading volumes. Despite this, Coinbase still has much catching up to do to compete with its higher-profile counterpart Binance, as well as other firms such as Bybit, OKX and Deribit. CoinGecko's data shows that Binance had a trading volume of over $56.6 billion in futures contracts over the course of the last day. Coinbase's global derivatives exchange, in comparison, did only $300 million in futures trading. Since January 2020, crypto-linked derivatives have been prohibited by the Financial Conduct Authority in the U.K., making them off-limits to Coinbase customers in that market. Elsewhere, Coinbase offers bitcoin and ether futures in the U.S., and bitcoin, ether, nano ether and West Texas Intermediate crude oil futures in other countries.Derivatives are financial instruments whose values are based on the performance of an underlying asset, with futures being a subtype of derivatives permitting investors to speculate on the value of an asset at a later point. Futures are seen as riskier than spot markets in the crypto space due to the unpredictability of cryptocurrencies and the use of leverage, which can greatly amplify gains and losses.
In May, the company began its foray into derivatives with the creation of an overseas derivatives exchange in Bermuda. Then, in November, they showcased their cryptocurrency derivatives in the US after receiving clearance from the National Futures Association. According to reporting from Fortune, Coinbase had considered acquiring the now-defunct FTX Europe, but later dismissed the notion; however, CNBC has been unable to independently verify Fortune's story.
Coinbase's push into derivatives is part of its wider expansion efforts beyond the U.S. The company has made strides in this area over the past year, despite the challenge of the SEC lawsuit which claims Coinbase violated securities laws. In October, it chose Ireland as its main EU regulatory base in advance of the new Markets in Crypto-Assets (MiCA) regulations, and is hoping to obtain a single MiCA license before they are fully implemented in 2024. Coinbase has also been granted a virtual asset service provider license in France, giving them permission to offer custodial and trading services for digital assets in the country.
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