Coinbase Launches Offshore Crypto-Derivatives Exchange

Coinbase Global (COIN), the parent company of the largest cryptocurrency exchange in the United States, has launched a crypto-derivatives exchange in Bermuda to facilitate trading of products that are not permitted in the U.S. due to regulatory uncertainty.

The newly introduced exchange by Coinbase will enable qualified institutional clients outside the United States to engage in trading crypto perpetual futures, which are derivative contracts without expiration dates.

Cryptocurrency perpetual futures trading is not regulated by the Commodities Futures Trading Commission (CFTC) in the U.S., and exchanges offering such products are typically not registered with the CFTC. The CFTC has taken action against several crypto platforms, including Binance, for providing perpetual contracts.

Coinbase’s perpetual contracts on the new exchange will offer leverage of up to 5x and will be settled in USD Coin (USDC), a stablecoin backed by Circle. The international exchange aims to provide enhanced opportunities, liquidity, and foster innovation and growth within the global crypto ecosystem for Coinbase’s clients.

According to Coinbase, perpetual futures trading accounted for approximately 75% of the global cryptocurrency exchange volume in 2022. Initially, the Coinbase International Exchange will be accessible solely via API, without a dedicated app or website for users. Bitcoin and Ethereum perpetual futures were listed for trading on the exchange at the beginning of Tuesday.

The launch of Coinbase International Exchange comes at a time when various crypto exchanges and services, including Bittrex and Binance, face heightened regulatory scrutiny and uncertainty in the U.S. Bittrex has ceased its operations in the country due to the regulatory climate.

Coinbase CEO Brian Armstrong has expressed frustration with U.S. regulators and hinted at the potential relocation of the company if the situation does not improve, citing the lack of clear and consistent rules for the sector.

Although Coinbase’s announcement regarding the new exchange highlights the disappointing regulatory trend in the United States, the move into Bermuda is being characterized as an expansion rather than a complete departure from the U.S.

Coinbase recently filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) seeking greater regulatory clarity for its operations within the country. Additionally, Coinbase published a video response last week to the Wells Notice received from the SEC earlier this year.

Notably, Coinbase and its executives are currently facing two new lawsuits. One lawsuit accuses the exchange of privacy violations related to the collection of biometric data in Illinois, while another alleges that some executives and insiders sold stock based on insider information before the company’s public listing in April 2021. Coinbase is scheduled to report its first-quarter earnings on May 4.

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