Coinbase, the leading U.S. cryptocurrency exchange, has laid out its plans to offer crypto-linked derivatives in the European Union (EU) as part of its long-standing ambition to serve professional and institutional customers. In pursuit of this goal, Coinbase has entered into an agreement to acquire an unnamed holding company possessing a MiFID II license, which refers to the EU’s updated rules governing financial instruments.
The EU updated the legislation in 2017 to address previous criticism that it focused too heavily on stocks and failed to consider other asset classes like fixed income, derivatives, and currencies. By acquiring a company with a MiFID II license, Coinbase aims to expand its offerings to include regulated derivatives such as futures and options within the EU.
In a blog post exclusively shared with CNBC, Coinbase expressed its commitment to the highest standards of regulatory compliance and outlined its intention to adhere to the rigorous compliance standards upheld in the EU. This includes combating money laundering, ensuring customer transparency, and complying with sanctions regulations.
With a team of over 400 professionals experienced in agencies such as the FBI and Department of Justice, Coinbase is dedicated to achieving its Five-point Global Compliance Standard. The company is fully aware that fulfilling these requirements and achieving regulatory approval for the acquisition will be a challenging journey, but it sees it as an exciting step towards global expansion and offering a more open financial system to a billion people worldwide.
Coinbase recognizes that derivatives could be a crucial battleground for its future success. According to the company, derivatives make up a significant 75% of overall cryptocurrency trading volumes. However, compared to its larger rival Binance and other firms like Bybit, OKX, and Deribit, Coinbase has much ground to cover.
Binance, for instance, boasts trading volumes of over $56.6 billion in futures contracts in the past 24 hours, dwarfing Coinbase’s current volume. Additionally, while Coinbase offers crypto derivatives products in the U.S., it does not provide them in the U.K. due to a ban imposed by the Financial Conduct Authority in January 2020, citing harm to retail consumers.
Derivatives are financial instruments whose value derives from the performance of an underlying asset. Specifically, futures are derivatives that allow investors to speculate on the future value of an asset. Despite the potential for higher gains, derivatives are considered riskier than spot markets for digital assets because of their volatility and the use of leverage, which can amplify both profits and losses.
Coinbase made its initial move into derivatives in May with the launch of an international derivatives exchange in Bermuda. It later introduced crypto derivatives in the U.S. after securing regulatory approval from the National Futures Association. Although Coinbase reportedly considered acquiring FTX Europe, the European entity of a now-collapsed crypto venue, the idea was ultimately shelved.
Coinbase’s focus on international expansion comes as it faces increased scrutiny and challenges in its home market. The company is currently embroiled in a lawsuit filed by the U.S. Securities and Exchange Commission, accusing Coinbase of violating securities laws. To navigate these hurdles, Coinbase selected Ireland as its primary regulatory base in the EU, positioning itself ahead of the incoming Markets in Crypto-Assets (MiCA) regulations.
Moreover, Coinbase recently secured a virtual asset service provider license from France, enabling it to offer custody and trading services for crypto assets in the country. These strategic moves highlight Coinbase’s determination to establish a global presence and expand its services to cater to a broader range of customers.
Coinbase’s acquisition of a company with a MiFID II license marks a significant milestone in the expansion of its offerings and the launch of derivatives trading within the EU. The company’s dedication to regulatory compliance, combined with its team of experienced professionals, positions Coinbase as an industry leader in trusted and compliant products and services.
As Coinbase navigates the regulatory approval process and works towards operationalizing the EU MiFID licensed entity, it remains committed to its mission of providing a more inclusive and accessible financial system to a global audience. With plans to serve eligible European customers and leverage the potential of the derivatives market, Coinbase’s future expansion continues to shape the landscape of the cryptocurrency industry.
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