Coinbase Launches First Crypto Derivatives Product Aimed at Retail Traders

Coinbase Derivatives Exchange, formerly known as FairX, is launching its first crypto derivatives product this month, hoping to attract more retail traders.

The futures exchange, which is regulated by the Commodity Futures Trading Commission (CFTC), will launch its derivatives product, Nano Bitcoin futures (BIT), on June 27, according to a statement sent to CoinDesk. “The crypto derivatives market represents $3T in volume worldwide and we believe that additional product development and accessibility will unlock significant growth,” the statement said.

Coinbase said it's also awaiting regulatory approval on its own futures commission merchant (FCM) license to offer margined futures contracts for its clients.

The launch comes at a highly volatile period in the crypto market, set off by the dramatic collapses of Terra’s LUNA, crypto lender Celsius and crypto fund Three Arrows Capital (3AC). Bitcoin’s price has fallen about 56% this year, while Ethereum’s native token ether is down roughly 70%.

Coinbase bought FairX earlier this year to launch crypto derivatives products. FairX launched its futures exchange platform in May 2021 after receiving regulatory approvals in late 2020.

Retail participation

Futures contracts are smaller in size, require less upfront capital than traditional bitcoin futures products and can be used as a hedge for trading strategies for both institutional and retail traders. “At 1/100th of the size of a Bitcoin, it requires less upfront capital than traditional futures products and creates a real opportunity for significant expansion of retail participation in US regulated crypto futures markets,” according to the statement.

However, not everyone sees derivatives as a product suitable for retail traders. Most recently, a senior Dutch financial regulator said that crypto derivatives trading should be restricted to wholesale markets only, citing risks of manipulation and other criminal activity.

In 2020, The U.K. watchdog, Financial Conduct Authority (FCA), banned crypto derivatives for retail consumers, saying that the products are ill-suited due to the risks they pose.

However, large banks including Nomura, Goldman Sachs and JPMorgan have already started trading crypto derivative contracts, giving their clients a way to trade the volatility in the crypto market and protect against downside risks.

Initially, the BIT futures will be available for trading via several leading broker intermediaries, including retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate, and clearing firms ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam and Wedbush, according to the statement.