Coinbase expands EU presence with acquisition of strategic derivatives trading

adminJanuary 8, 2024

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Coinbase, a leader in cryptocurrency exchanges, has announced significant expansion plans within the European Union (EU). The company aims to introduce cryptocurrency-linked derivatives products to the EU market, marking a strategic move to diversify its financial product offering.

In a report on CNBC, the company said it was in the process of acquiring a holding company that would come with a MiFID II license. This license is an important aspect of the EU’s financial regulations, especially after the MiFID II amendments in 2017. Originally focused on stocks, the updated regulations include derivatives, fixed income, and currencies. The move is consistent with Coinbase’s ongoing efforts to expand its services, particularly its efforts to offer sophisticated financial products to its institutional and professional customer base.

This license helps Coinbase expand access to derivatives by allowing it to offer derivatives to eligible European customers in select countries across the EU.

The successful integration of this acquisition will mark Coinbase’s first venture into the derivatives trading space within the European Union. This step demonstrates the company’s commitment to expand its service portfolio and achieve strategic growth in the global financial markets.

Coinbase Information

Coinbase, a well-known name in the cryptocurrency exchange industry, offers a variety of services including cryptocurrency trading and wallet functions. Coinbase’s main source of revenue comes from transaction fees and interest on USDC reserves. This is the result of a partnership with stablecoin issuer Circle. This revenue model closely links Coinbase’s financial performance to the dynamics of market trends and interest rate changes.

Its importance in the cryptocurrency investment space has been highlighted recently, as we reported on its prominent place in Cathie Wood’s Ark fund investment strategy.

Under Armstrong’s leadership, Coinbase has continued to prioritize strategic development with a focus on building a trustworthy and reputable platform. This strategy has been instrumental in establishing Coinbase as the leading U.S. cryptocurrency exchange by trading volume.

The company’s third quarter financial results showed solid growth, with revenue up 14% to $674 million. This growth was driven by a balanced mix of transactional revenue and subscription services. The surge in subscription and services revenues, particularly interest income on USDC reserves, has played a pivotal role in the company’s growth trajectory. Additionally, during this period, Coinbase has made notable progress in its international expansion efforts, including entering new markets such as Canada and securing registration as a cryptocurrency exchange with the Bank of Spain, thereby expanding its presence in global markets.

Provides cryptocurrency derivatives trading

Obtaining a MiFID II license allows Coinbase to offer regulated derivatives, including futures and options, to clients in selected EU countries. The acquisition, pending regulatory approval, is expected to close in 2024. Coinbase said in a blog statement that this license will significantly enhance its ability to offer derivatives to eligible European clients in select EU countries. The company emphasized its commitment to the highest compliance standards, specifying that businesses must adhere to Coinbase’s five global compliance standards before any license can operate or provide services to users.

The importance of derivatives trading in the cryptocurrency market cannot be overemphasized. Coinbase notes that these transactions account for 75% of total cryptocurrency trading volume. Despite stiff competition from large market players like Binance, which dominates the cryptocurrency-related derivatives market, Coinbase has decided to carve a niche for itself in this essential sector. Due to regulatory restrictions in the UK, Coinbase is currently unable to offer cryptocurrency derivatives. However, the company offers Bitcoin and Ether futures trading in several markets both in the US and outside the US.

What are derivatives?

Derivatives are defined as financial instruments whose value depends on the performance of the underlying asset. Futures, a type of derivative, allow investors to speculate on the future value of an asset. The volatile nature of cryptocurrencies, combined with the potential for significant profits and losses through leverage, makes futures trading generally riskier than spot market trading.

Coinbase’s derivatives business is consistent with its broader international expansion strategy, especially considering regulatory issues in the United States. The company is being sued by the U.S. Securities and Exchange Commission for alleged violations of securities laws. In response, Coinbase has been actively seeking growth opportunities in international markets. Ireland has been chosen as the EU’s primary regulatory base and the company is in the process of applying for a single MiCA license in preparation for the upcoming cryptocurrency legislation. Coinbase has also obtained a virtual asset service provider license in France, allowing it to offer cryptocurrency asset storage and trading services in that country.

Coinbase recently announced that it has received regulatory approval to offer perpetual futures trading services to retail customers outside the United States. This development highlights Coinbase’s commitment to expand its global presence and provide a range of cryptocurrency-related services to its international customers.