Two high profile cryptocurrency exchanges, Coinbase and Gemini, have both gone live with offshore cryptocurrency derivatives platforms. The platforms are not available to U.S.-based clients, and both have been accused by the U.S. regulator, the SEC, of trading unregistered securities. Coinbase’s approach is considerably more conservative.
Yesterday Gemini said that Gemini Foundation is now live and trading dollar-based perpetual futures for Bitcoin with up to 100 times leverage. According to the fine print, Gemini Foundation is governed by Singapore law, although Gemini has no Singapore licenses. Singapore does not have a licensing regime for crypto derivatives, but spot trading is a different matter. Notably, the futures are not available in Europe or the U.K.
Turning to Coinbase, it said it landed a license in Bermuda last month and today announced its Coinbase International Exchange is now live and supports perpetual futures for Bitcoin and Ethereum. By crypto standards, the leverage it initially offers of 5x is conservative compared to Gemini’s and Binance’s of up to 125x. It also is currently restricting access to institutional clients.
Coinbase positioned its launch as part of its ‘Go Broad, Go Deep’ strategy, unveiled almost a year ago, aiming to offer a crypto gateway in every country.
The exchange was keen to emphasize that it was not involved in proprietary trading on the platform, only market makers.
Crypto derivatives dwarf the spot market
When FTX collapsed last year, it was one of the biggest players in the derivatives market, where Binance has long held the first position. Coinbase is currently the second largest spot crypto exchange, with daily turnover of around $1 billion in the past 24 hours. Binance’s normalized daily spot turnover is $4 billion, but its derivatives figure is almost $37 billion.
SEC Wells notice to Coinbase
Following the collapse of FTX and other crypto organizations last year, the SEC has ramped up enforcement activities, especially as it now has some useful legal precedents.
The SEC sent Coinbase a Wells notice, a warning of potential legal action. That’s because Coinbase is not a regulated exchange but, in the SEC’s view, it trades securities. The SEC considers most cryptocurrencies as securities. The crypto exchange responded publicly last week.
“We want to see a clear market structure for trading crypto securities. Not all crypto assets are securities,” said Coinbase CEO Brian Armstrong. “We’re going to work with multiple regulators to make this industry safe and trusted. And a Well’s notice at this stage, when there is not a clear rulebook, is not constructive. And it’s not good for America. We are prepared to defend that position in court.”
Chief Legal Officer said it has repeatedly asked the SEC for its views on how securities laws apply to Coinbase but said it had ‘mostly’ had no response.