By
Steve Muchoki
April 26th, 2024
For many in the crypto industry, this approval signifies a notable regulatory achievement for both the company and the broader crypto landscape due to the ongoing legal battle between the exchange and the US SEC.
On August 16, Coinbase, one of the world’s largest crypto exchanges, received regulatory approval to become the first native crypto company to operate as a Futures Commission Merchant (FCM). In June, the SEC accused Coinbase of evading the registration of its product offerings and thereby violating the country’s federal securities laws.
During the announcement yesterday, Coinbase said the FCM registration was approved by the National Futures Association (NFA), a self-regulatory organization under the Commodities Futures Trading Commission (CFTC) purview. After two years of deliberation, the NFA accepted the application, granting Coinbase permission to provide crypto futures contracts to US residents.
A Big Deal for Coinbase
With the registration granted to Coinbase, crypto community members have pointed out the discrepancy between CFTC’s stance on crypto and the SEC‘s reservations about its regulatory status.
Avichal Garg, the founder of investment management firm Electric Capital, said on X, formerly Twitter, that getting FCM approved by the commodities regulator takes years of work. Adding that if he were the judge handling the SEC vs Coinbase case, he would question the regulator why it claimed that Coinbase was unwilling to register its product offerings within its jurisdiction.
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, former CFTC Commissioner and now policy head at crypto investment firm a16z, also commented on the approval, emphasizing the value of an open and constructive dialogue between regulators and the technology sector. This approach, he believes, is conducive to nurturing innovation while safeguarding consumer interests.
“Coinbase has consistently demonstrated its dedication to regulatory compliance, and here is yet another strong example. Customers and innovation can both win when a regulator is open to having a constructive dialogue around new technology,” Quintenz said in the tweet.
Coinbase to Compete with Non-Crypto Companies
The FCM approval has placed Coinbase in direct competition with non-crypto firms such as Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE).
Both firms already offer US customers Bitcoin (BTC) and Ethereum (ETH) futures contracts.
Meanwhile, Coinbase said in its announcement yesterday that the derivatives market contributes up to 75% of the total trading volumes. Earlier this year, CoinGecko disclosed that the global directives market stands at $3 trillion.
Market experts believe the approval will significantly increase Coinbase’s total addressable market.
“Since the global crypto derivatives market can be three to four times larger than the spot, this approval increases Coinbase’s total addressable market,” said Dan Dolev, an analyst at Mizuho Securities, as reported by Barron’s.
In terms of its stock performance, Coinbase’s stock (COIN) remained relatively unaffected by the news, experiencing a 1.56% drop on the same day. However, the bigger picture reveals a positive trajectory, with Coinbase shares having surged by 130% so far this year.
