Crypto Exchanges Coinbase and Gemini
Two prominent crypto exchanges Coinbase and Gemini, have launched offshore cryptocurrency derivatives platforms. However, these platforms are not available to customers in the United States. Both exchanges have been accused by the U.S. Securities and Exchange Commission (SEC) of trading unregistered securities. Coinbase has taken a more cautious approach to the matter.
Recently, Gemini announced that its Gemini Foundation is now live and is offering dollar-based perpetual futures for Bitcoin with leverage of up to 100 times. The fine print reveals that Gemini Foundation is governed by Singapore law, although Gemini does not possess any licenses from Singapore. While there is no licensing regime for crypto derivatives in Singapore, spot trading is regulated. Notably, the futures are not available in Europe or the United Kingdom.
Two major cryptocurrency exchanges, Coinbase and Gemini, have recently launched offshore cryptocurrency derivatives platforms for trading Bitcoin and Ethereum perpetual futures. However, both platforms are not available to clients based in the United States and have been accused by the U.S. regulator, the SEC, of trading unregistered securities.
Gemini’s derivatives platform, Gemini Foundation, offers dollar-based perpetual futures for Bitcoin with up to 100 times leverage, governed by Singapore law. While Singapore does not have a licensing regime for crypto derivatives, spot trading is regulated. The futures are not available in Europe or the UK.
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In contrast, Coinbase’s derivatives platform, Coinbase International Exchange, is based in Bermuda and offers perpetual futures for Bitcoin and Ethereum with a leverage of up to 5x, initially restricting access to institutional clients. Coinbase emphasized that it was not involved in proprietary trading on the platform, only market makers. Coinbase’s launch is part of its ‘Go Broad, Go Deep’ strategy, which aims to provide a crypto gateway in every country.
Crypto derivatives dwarf the spot market
Last year, FTX was a major player in the derivatives market before it collapsed. Currently, Binance is the leading player in the derivatives market, while Coinbase is the second largest spot crypto exchange with a daily turnover of approximately $1 billion in the past 24 hours. Binance’s normalized daily spot turnover is $4 billion, but its derivatives turnover is almost $37 billion.
SEC Wells notice to Coinbase
In the wake of the collapse of several crypto organizations, including FTX, last year, the SEC has increased its enforcement activities and has gained some useful legal precedents. As a result, the SEC sent Coinbase a Wells notice, which is a warning of potential legal action, because it is not a regulated exchange, but the SEC views its trading activities as involving securities. Coinbase CEO Brian Armstrong responded publicly last week, stating that the company wants to see a clear market structure for trading crypto securities and that not all crypto assets are securities. Armstrong also said that the company is prepared to defend its position in court. The Chief Legal Officer added that Coinbase had repeatedly asked the SEC for its views on how securities laws apply to the company but had mostly received no response.
Source – Coinbase