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Coinbase is offering a “Nano” Bitcoin futures contract with a price of 1/100 of a Bitcoin, equivalent to around $ 210 on Friday morning.
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Coin base
Global says it will launch a Bitcoin derivative on Monday. Investors in the stock should not expect an unexpected fall, although such products account for the vast majority of crypto trading.
It is true that offering cryptocurrency derivatives in general has long been a goal for US-based exchanges. Some Americans trade on foreign platforms – often even if they are not supposed to – because it allows them to buy products that allow them to entrust their efforts with high influence. The hope is that when companies introduce regulated products available to Americans, much of the money will return to US platforms.
The total crypto trading volume has also long been well above that in the spot markets where exchanges such as Coinbase usually conduct business. In the 24 hours to early Friday afternoon, for example, the crypto-trading platform Binance saw $ 52.5 billion in cryptocurrency derivatives, compared to $ 12.7 billion in spot trading. Coinbase had around $ 1.7 billion in spot volume.
That Coinbase is now able to dip its toe in the water is without a doubt positive for the stock. But investors should not get carried away. It will take a while before derivatives generate large revenues for the company.
First, it is important to look at exactly what Coinbase has announced. As of June 27, the company’s derivatives exchange, which it bought and renamed earlier this year, will offer a “Nano” Bitcoin futures contract with a price of 1/100 of a Bitcoin, equivalent to about $ 210 on Friday morning.
This may make the product more attractive to retail investors, as it requires less capital, but the contract will not be the type of high-impact offering that has helped drive volume on foreign exchanges. In fact, the new Coinbase product is no different from futures that have been offered on regulated commodity exchanges for years.
CME Group
already has “micro” Bitcoin and Ether futures, the size of 1/10 of a coin. In March, it launched micro-Bitcoin and Ether alternatives, so Coinbase’s product will compete with offerings in other, well-established markets.
Second, Coinbase is not yet able to offer the product directly to customers. The company says that for the time being, the derivatives will trade on third-party platforms while Coinbase is applying for a necessary license.
Finally, the announcement does not avoid the big problem the company is facing, which is that when crypto trading competition increases, margins can be eroded, says Mizuho analyst Dan Dolev, who has a neutral rating on the stock.
Coinbase’s announcement is not “something to write home about,” Dolev said. “It does not solve the main problem, which is that free trade is coming, and free trade means that the moat or their income is going to be under pressure.”
A Coinbase spokesman declined to comment.
Binance.US, Binance’s US affiliate, this week eliminated commissions for trading Bitcoin against dollars and some dollar-backed tokens, saying it would expand its fee-free level to other digital assets in the future.
The story is similar to what has unfolded among stockbrokers in the last couple of decades. Competition lowered commissions and then largely stamped them out. This was a good deal for investors in general, but not for those who held brokerage shares.
–Daren Fonda contributed to this article.
Write to Joe Light at [email protected]
