Coinbase Global, Inc. (COIN) claims to be mobilizing efforts to enhance economic liberty for more than a billion individuals worldwide. As part of this monumental undertaking, COIN is steadfastly focused on the creation and global expansion of trusted, fully compliant products and services.
In adhering to its "Go Broad, Go Deep" strategy, COIN is forging a pathway grounded in regulatory clarity, licensure, and registration to facilitate its international growth. Its Five-point Global Compliance Standard reinforces the company's pledge to make its products and services the most trustworthy in the market.
In its continuous bid for optimal regulatory compliance, COIN ensures that each entity fulfills its Five-point Global Compliance Standard before any license gets operationalized or any customer is served. This standard encompasses critical elements like Know Your Customer (KYC) processes, anti-money laundering measures, governance best practices, and ongoing monitoring and reporting procedures.
The application of this bespoke compliance standard and furthering strategic inputs have coalesced to yield significant progress for COIN in the past year. The company rapidly expanded, launching new operations in critical markets and initiating a range of derivative products. Yet, it begs the question – why is COIN so assertive in broadening its reach beyond American shores?
In the past year, COIN has aggressively pursued expansion globally, contending with increasing difficulties domestically. The firm is currently embroiled in a lawsuit instigated by the U.S. Securities and Exchange Commission, accusing it of securities law violations.
In October, the company chose Ireland as its primary regulatory base within the European Union in anticipation of impending crypto regulations denoted as the Markets in Crypto-Assets (MiCA). It also applied for a single MiCA license, which is expected to be granted by December 2024. Additionally, COIN recently procured a virtual asset service provider license from France, giving them clearance to offer crypto trading and custody services in the country.
Continuing its global expansion, COIN hopes to acquire a Cyprus-based entity with a European Union MiFID (Markets in Financial Instruments Directive) license. This acquisition would potentially widen access to its derivative products and extend services to qualified customers in selected EU countries, and it is contingent on regulatory approval. The closure of this deal is anticipated later in 2024.
COIN does not currently extend its crypto derivative offerings to the UK due to a January 2020 ban by the Financial Conduct Authority, which declared these products as "ill-suited" for retail consumers because of their inherent risks. However, in the U.S. and other international markets, COIN offers trading in bitcoin futures and ether futures, including "nano" ether futures and West Texas Intermediate crude oil futures.
The EU’s MiFID is one of the world’s most highly regarded licensing regimes regulating investment services and activities. MiFID has established a comprehensive single rulebook across the EU and is a central pillar in the EU’s Capital Markets Union strategy.
Could it be a critical battlefield for COIN?
In recent years, digital currencies have revolutionized the financial industry, challenging traditional economic systems by gaining appeal both as investment assets and transactional mediums. A particularly dynamic and swiftly growing segment within the cryptocurrency market is that of crypto derivatives, which experienced significant expansion and shows no signs of abating.
Derivatives are financial instruments that derive their value from the performance of an underlying asset. In traditional financial markets, derivatives are linked to assets like stocks, bonds, commodities, and fiat currencies. Within the cryptocurrency world, these financial instruments derive their value from digital assets like Bitcoin and Ethereum.
Crypto derivatives operate on principles similar to traditional derivatives, involving a contractual agreement between a buyer and a seller to exchange an underlying asset at a predetermined time and price. Unlike owning the actual asset, derivative traders do not possess the underlying cryptocurrency.
According to COIN, derivatives constitute over 75% of the global cryptocurrency market, highlighting their significant contribution to broadening the spectrum of investment possibilities in the Bitcoin sector.
This acquisition bodes the potential to usher in a substantial revenue source for the exchange in Europe. Impressively, regulators have given COIN the green light to provide derivative products to non-US retail consumers and qualified U.S. customers.
COIN marked its entry into the derivatives market in May with the initiation of an international derivatives exchange in Bermuda. Subsequently, it extended its provision of crypto derivatives to U.S. customers in November upon securing regulatory clearance from the National Futures Association.
However, despite its proactive strides, COIN is grappling with robust competition from entrenched market participants in the derivatives sector. Predominantly, COIN must face off with its primary adversary, Binance – a behemoth in the crypto-linked derivatives market, along with other players, including Bybit, OKX, and Deribit.
According to CoinGecko data, Binance recorded a whopping $61.39 billion in futures contract trading volume in just the preceding 24 hours – a stark contrast to COIN's much smaller volume of $299.48 million on its international derivatives exchange.
Even though a derivative's value depends on the performance of an underlying asset, index, or rate, it can significantly influence the market dynamics and investment strategies. Consequently, it can be an effective tool for capitalizing on market fluctuations and managing risk within the financial sphere.
Bottom Line
COIN, a leading cryptocurrency exchange with a whopping market cap of over $38 billion, is making strides with its MiFID pursuit – a move that bodes well for investor confidence. This demonstrates the firm’s growing ambition to expand its global footprint and compete with notable players in the market. Equally important, it underlines COIN's commitment to meet the stringent compliance standards that the EU upholds.
Furthermore, the MiFID pursuit could enhance COIN's reputation and boost its valuation as it aims to harness the potential of crypto derivatives in establishing a more equitable, accessible, efficient, and transparent financial system fortified by cryptocurrency.
A formative player in the financial sphere, COIN has spent the last 12 years curating its robust offerings to institutions such as hedge funds and high-frequency trading firms. This bid to benefit from larger transaction volumes these traders bring could revolutionize the company. Should COIN finalize the deal, this would mark the company's inaugural launch of derivatives trading in the EU.
Moreover, crypto derivatives play a pivotal role in enhancing market liquidity, acting as an essential tool for risk management in the volatile crypto market. They also offer traders opportunities to diversify investment portfolios across various crypto assets while employing advanced trading strategies like arbitrage and short-selling.
In November, derivative trading volumes on centralized exchanges saw an unprecedented surge, marking their highest levels since March 2023. The potential growth in derivatives trading is unequivocal, paving the way specifically for COIN to capitalize on its stellar reputation and appeal to institutional clients.
Moving forward, investors could keep an eye on COIN for better entry opportunities.
