Coinbase, one of the biggest exchanges operating in America and the second largest in the world in terms of exchange score, according to Coinmarketcap, looks to be making an entry into the derivates trading market as the firm just acquired FairX, a derivatives exchange.
FairX is a Designated Contract Market (DCM) derivatives exchange regulated by the Commodity Futures Trading Commission (CFTC). Despite being relatively new to the market, as the platform just launched 8 months ago in May 2021, FairX has secured brokerage partnerships with industry leaders like TD Ameritrade and E*Trade, along with 18 others.
The announcement stated, “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.”
What you should know
Derivative trading is when traders speculate on the future price action of an asset via the buying or selling of derivative contracts with the aim of achieving enhanced gains when compared with buying the underlying asset outright. Investors can now trade derivatives on a range of financial markets including stocks, currencies, commodities and cryptocurrencies.
In a tweet from Coinbase, the exchange explained that adding derivatives trading to its suite of products would ultimately benefit investors on its platform. It reads, “The creation of a transparent derivatives market will unlock further participation in the crypto economy for retail and institutional investors alike.”
Crypto derivatives account for a lucrative $137 billion in 24-hour trading volume over the past day according to CoinGecko. This puts it far above the roughly $55 billion in spot trading volume across crypto exchanges in the same period.
The announcement also talks about the potential FairX has. It stated, “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.”
In the announcement, Coinbase explained that the acquisition is subject to customary closing conditions and reviews and is expected to close in Coinbase’s first fiscal quarter. It also stated that FairX will operate normally during the period of the acquisition.
Coinbase launching regulated crypto derivatives markets would likely slingshot it immediately into the top exchanges in that category as it has 56 million active users, 8.8 million of whom make at least one trade per month according to BusinessofApps. It also puts them in direct competition with the likes of Binance, FTX, Bybit, and OKEx, all of which are also competitors with Coinbase on spot markets.
COIN trades $234.70. It is up 3% in pre-market skirmish.