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Coinbase Derivatives Exchange, formerly known as FairX, is introducing its first crypto derivatives product this month to attract more retail traders.
According to a statement from CoinDesk, the CFTC-regulated futures exchange will launch its derivatives product, Nano Bitcoin futures (BIT), on June 27. "The crypto derivatives market represents $3T in volume worldwide, and we believe that additional product development and accessibility will unlock significant growth," the statement noted.
Coinbase stated that it is also awaiting regulatory clearance on its futures commission merchant (FCM) license to offer clients margined futures contracts.
The debut occurs during a moment of extreme volatility in the cryptocurrency industry, precipitated by the spectacular failures of Terra’s LUNA, crypto lender Celsius, and crypto firm Three Arrows Capital (3AC). Bitcoin’s price has decreased by over 56% this year, while ether, Ethereum’s native token, has reduced by almost 70%.
Coinbase acquired FairX earlier this year to introduce cryptocurrency derivatives. In May 2021, after getting regulatory permissions in late 2020, FairX launched its futures market platform.
Futures contracts are more minor in size, need less initial capital than standard bitcoin futures products, and may be utilized by institutional and individual traders as a hedge for trading methods. According to the statement, “At 1/100th of the size of a Bitcoin, it requires less upfront capital than traditional futures products and creates a real opportunity for significant expansion of retail participation in U.S. regulated crypto futures markets,”
However, derivatives are not universally regarded as a product for retail traders. A top Dutch financial regulator has stated that the trading of crypto derivatives should be kept to wholesale markets exclusively, citing dangers of manipulation and other illicit behavior.
The U.K.’s Financial Conduct Authority (FCA) prohibited crypto derivatives for retail users in 2020, citing the inherent risks associated with the products.
However, prominent banks, including Nomura, Goldman Sachs, and JPMorgan, have already begun trading crypto derivative contracts, allowing their customers to trade market volatility and mitigate adverse risks.
According to the statement, the BIT futures will initially be available for trading through several leading broker intermediaries, including retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate, and clearing firms ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam, and Wedbush.