Coinbase is officially entering the crypto derivatives market, and a strategic acquisition of FairX, a CFTC-regulated derivatives exchange, is its first major step. Crypto futures and options trading on the platform are already under development and are being readied for licensing.
According to Coinbase, the acquisition is “a key stepping stone on Coinbase’s path to offer crypto derivatives to retail and institutional customers in the US.” The move comes as FTX.US and Crypto.com, Coinbase’s prime competitors in the U.S. have made similar initiatives. Kraken, another U.S.-based exchange, already has presence in the derivatives market.
“As crypto matures as an asset class and the world’s most sophisticated investors deepen their journey into the cryptoeconomy, a healthy, well-regulated derivatives market will be critical for long-term success.” Coinbase stated in a blog announcement.
Derivatives are financial instruments that derive their value from an underlying asset, such as a cryptocurrency, fiat currency, or commodities. Traders may wager on the future price of the underlying asset either in the form of speculation or as a method to hedge risk. There are generally two types of derivatives contracts available in a derivative market. Options give purchasers the right to buy or sell an underlying asset at a specified price, but do not force them to do so. Futures, on the other hand, imply that the trade must take place on the contract’s specified expiration date. In simple terms, futures contracts enable investors to lock in a commitment, while options provide investors with a choice of whether a trade should be executed or not.
“FairX brings a world-class team with deep expertise across product development, market structure, and compliance to Coinbase. Its market-leading exchange technology and proven ability to deliver listed futures in a straightforward, easy-to-understand structure, aligns with Coinbase’s commitment to creating a more fair, accessible, efficient, and transparent financial system enabled by crypto.” Coinbase said of the acquisition.
FairX’s status as a regulated entity approved by the U.S. Commodity Futures Trading Commission (CFTC) is a key factor in Coinbase’s decision to acquire it. The acquisition is subject to closing conditions and further reviews, with a closing date expected to align with Coinbase’s first fiscal quarter.
Derivatives present a lucrative sector, especially for exchanges operating in first-world countries such as the U.S. According to recent industry data from CoinMarketCap, average derivatives volume surpasses spot volume by at least three times the 24-hour cap, with Binance representing a major foothold in the market with over $53.2 billion in daily volume.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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