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Coinbase, the largest US crypto exchange by daily trading volumes, made an announcement on January 13th, revealing the acquisition of the FairX derivatives exchange. With the new exchange under its wing, Coinbase seeks to enter the derivatives trading markets.
The announcement revealed Coinbase’s intention to roll out cryptocurrency derivatives trading for US customers. The exchange also noted that it wants to make the derivatives market more approachable for its retail users.
In a separate tweet, Coinbase also said that the creation of a transparent derivatives market would benefit the investors on its platform and that it could unlock further participation in the crypto economy. Both institutional and retail investors would find this beneficial, as Coinbase believes that a transparent derivatives market is “a crucial inflection point for any asset class.”
CoinGecko data shows that cryptocurrency derivatives account for $137 billion in daily trading volume. The figure puts it high above the $55 billion that crypto exchanges have seen in spot trading volume during the same period.
Coinbase concluded that it is of great importance to create and nurture liquid derivatives markets. Entering this area of trading will allow the exchange to join a number of other crypto derivatives exchanges, including OKEx, Bybit, FTX, and Binance. Coinbase is already familiar with all of these companies, as they are already its competitors on spot markets.
With the platform’s 56 million active users, Coinbase is likely to immediately rise to be one of the top derivatives exchanges in the industry.
Derivatives trading is a way for traders to profit from a variety of exotic products. Trading derivatives means trading contracts that use underlying assets as a source of value. It is simpler than trading the assets themselves, and it relies on analyzing the market and predicting the future value of the underlying asset linked to the derivatives contract.
Derivatives trading is easiest to access on derivatives exchanges such as FairX, which is a Designated Contract Market (DCM) exchange regulated by the United States’ CFTC. FairX launched in May 2021, which makes it relatively new to the market. Regardless, it managed to secure brokerage partnerships with 20 different industry leaders, including E*Trade, TD Ameritrade, and others.