Coinbase Expands Offerings With New Bitcoin Futures Product

The so-called “Nano” Bitcoin futures contract will initially be available through leading brokerages rather than Coinbase itself.

Coinbase Expands Offerings With New Bitcoin Futures Product
Shutterstock images by Vintage Tone and Iryna Budanova (edited by Mariia Kozyr)

Key Takeaways

  • Coinbase is planning to launch its first crypto derivatives product next week.
  • The so-called "Nano" Bitcoin futures contract (BIT) will initially start trading through third-party brokerages, not via Coinbase itself.
  • The BIT contracts will be cash-settled and sized at one one-hundredth of a Bitcoin as to be better suited to retail traders.

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Coinbase has announced it will launch its first derivatives product, a cash-settled Bitcoin futures contract, on Jun. 27.

Coinbase to Launch First Derivatives Product

The Coinbase Derivatives Exchange—formerly the FairX exchange, acquired by Coinbase in January this year—will launch its first listed crypto derivatives product.

According to a Friday blog post, the so-called “Nano” Bitcoin futures contract will begin trading on Jun. 27 under the ticker BIT. Each contract will be sized at one one-hundredth of a Bitcoin and settled in cash or, more specifically, U.S. dollars. 

Interestingly, the BIT contracts will initially be available for trading only via third-party brokers and clearing firms. Coinbase is currently awaiting approval from the Commodity Futures and Exchange Commission on its own futures commission merchant (FCM) license so that it can offer margined futures contracts directly to its clients and customers. 

“The crypto derivatives market represents $3Tn* in volume worldwide and we believe that additional product development and accessibility will unlock significant growth,” head of the Coinbase Derivatives Exchange Boris Ilyevsky wrote in the blog post. “It’s more important than ever to bring the benefits of futures to a broader market so that all types of traders can access regulated U.S. crypto derivatives markets to express their views or hedge their underlying crypto assets.”

Coinbase’s new Bitcoin futures product is specifically tailored toward retail traders, offering less up-front capital than traditional futures contracts. This move is somewhat controversial considering that, in 2019, the U.K.’s Financial Conduct Authority banned the sale and marketing of crypto derivatives to retail traders in the country. More recently, in May, the Dutch Authority for Financial Markets (AFM) also voiced a similar sentiment, arguing that the “trade in crypto derivatives should be restricted to wholesale trade.” The AFM, however, hasn’t yet been able to restrict retail-oriented crypto derivatives in the country due to the lack of regulatory powers.

Coinbase’s expansion into derivatives follows cuts in its workforce. Earlier in June, the company announced that it would be laying off around 18% of its workforce to ensure it stays healthy during the current economic downturn. “We appear to be entering a recession after a 10+ year economic boom,” Coinbase CEO and co-founder Brian Armstrong said in a blog post. He explained that a recession could lead to another “crypto winter,” depressed periods in the crypto market that have historically hurt the firm’s trading revenues.

The new derivatives product, which will allow retail traders to hedge their Bitcoin positions during the current bear market, could be precisely what the U.S.’s biggest crypto exchange needs to boost its trading revenues after the underwhelming launch of its NFT marketplace last month.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

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