Coinbase expands derivatives offering in EU, set to acquire MiFID II

Coinbase has recently unveiled its intentions to offer crypto-linked derivatives within the European Union. In an exclusive statement to CNBC, the crypto trading platform shared its upcoming acquisition of an undisclosed holding company possessing a MiFID II license for the expansion.

The MiFID II license is a European packet of financial industry reform legislation set to regulate financial markets. The license extends oversight to all aspects of financial investment and trading in the country.

“This license would help expand access to our derivatives products by allowing Coinbase to offer them to eligible European customers in select countries across the EU,” Coinbase said in a blog post shared with CNBC on Friday.

“As the industry leader in trusted, compliant products and services, we aim for the highest standards for regulatory compliance, and before operationalizing any license or serving any users, this entity must achieve our Five-point Global Compliance Standard.”

Upon finalizing the deal, Coinbase will achieve a noteworthy milestone by venturing into derivatives trading outside of the U.S. On top of expanding Coinbase’s services in the EU, this MiFID II acquisition also positions the company strategically in the pivotal derivatives market.

MiFID II for EU expansion

Operating for nearly 12 years, Coinbase stays true to its goal of catering to professional and institutional clientele. The particular target markets of the platform are hedge funds and high-frequency trading firms.

Now, Coinbase is seeking to tap into the substantial transaction volumes characteristic of these traders. As such, the company has been progressively expanding its offerings, especially in the derivatives market.

Derivatives, financial instruments deriving their value from an underlying asset, include futures allowing investors to speculate on future asset values. Considered riskier than spot markets in digital assets due to cryptocurrency volatility and the use of leverage, Coinbase navigates regulatory constraints while vying for a substantial share in the derivatives landscape.

The company has shared that derivatives are especially a critical battleground, considering how they constitute 75 percent of the overall crypto trading volumes. Acquiring a MiFID II license will enable Coinbase to introduce regulated derivatives such as futures and options. Furthermore, it will enhance its current spot trading services in Bitcoin and other cryptocurrencies.

Coinbase still has much to cover, especially with the progress of formidable competitor Binance, widely considered a dominant force in the crypto-linked derivatives market. Other competitors in the market include firms like Bybit, OKX, and Deribit.

Binance, as per CoinGecko data, recorded a staggering trading volume exceeding $56.6 billion in futures contracts in the past 24 hours, dwarfing Coinbase’s volume of $300 million.

Coinbase presently does not offer crypto derivative products in the U.K. due to regulatory restrictions imposed by the Financial Conduct Authority in January 2020. However, it provides trading in Bitcoin futures U.S. On top of offering Bitcoin futures, Coinbase also covers ether futures, “nano” ether futures, and West Texas Intermediate crude oil futures in international markets.

To close in on the gap in the derivative market, Coinbase is opting for Ireland as its main regulatory hub in the EU. The company positioned itself ahead of the impending crypto laws under Markets in Crypto-Assets (MiCA).

Coinbase applied for a singular MiCA license. The company aims to get approval by December 2024 when the regulations become fully effective. The exchange also secured a virtual asset service provider license from France, granting authorization for custody and trading of crypto assets within the country.