Coinbase has become the largest US-based crypto spot exchange after it acquired FairX, which is a fledgling futures exchange. This will give them a strong foothold over the cryptocurrency derivatives.
FairX was launched last year and regulated by the US Commodity Futures Trading Commission.
This Chicago based company lists futures contracts that track markets such as stock indices and oil. It was launched with the backing of several brokers and trading firms.
Their contracts are cleared by Nodal Clear, which in turn is controlled by Deutsche Börse. It aimed to offer retail investors simple and more accessible futures.
Coinbase declared its intention for acquisition on Wednesday. Their aim is simple, to regulate crypto derivatives to market and offer it to all Coinbase customers in the US. It can be achieved through the existing infrastructure of the FairX.
This comes when other financial exchange operators such as CME Group started to offer crypto futures. These operators also provide an established, regulated venue for the traders to speculate or hedge against their holdings.
Coinbase’s rival, FTX US, similarly acquired a derivatives platform called LedgerX last year. At the same time outside the US, Binance crypto exchange allowed its customers to trade digital asset’s futures and options.
But this feature was then restricted after they clashed with the UK regulator late last year.
According to the company, developing such a transparent derivatives market is a critical turning point for any asset class. Through this, they wish to open further participation in the crypto economy.
Retail investors have shown how powerful they are in the GameStop-AMC incident. They aren’t even much affected by the pandemic related economic crisis. The crypto traders are cashing in on derivatives to use it.
That is why regulators have expressed their concerns over the derivatives products by the crypto exchanges.
They fear that it would quickly expose retail investors to heavy losses. Last year the UK Financial Conduct Authority banned its sale to retail investors.
The news of the acquisition has led to an increase in shares of Coinbase by 1.2%. Even though financial terms are not revealed, the deal is expected to close by the first quarter.
All of this is happening where on the other side, private equity firms are purchasing investment advisors. These are the ripple effects of the pandemic in the market, where man started to depend more on technology and the cyberworld.