Coinbase to Introduce Crypto Derivatives but Face Challenges Ahead

Coinbase to Introduce Crypto Derivatives but Face Challenges Ahead

Coinbase Global  (TKR: COIN) is set to launch derivatives trading for Bitcoin on June 27th. 

The product is a “Nano Bitcoin Future”, which is sized at 1/100th of a Bitcoin. (Roughly $200 at the time of writing.) This lower price point future could be interesting to retail investors, though it doesn’t offer the high leverage many traders are used to seeing on foreign exchanges. 

Crypto derivatives have been mostly restricted in the United States despite them accounting for a majority of crypto currency based trading. 

Crypto Derivitive’s Market

In offering a BTC derivative, Coinbase is hoping to attract more users that are currently trading crypto on oversea exchanges that don’t require KYC. However, the product can still not be offered directly to consumers, and will trade on 3rd party markets as Coinbase seeks further licensing. 

The fact that coinbase is now able to start offering some form of derivatives should be good for customers and the overall parent company of Coinbase Global. However, it is worth noting that there are other Crypto futures available for US investors such as CME Group’s micro BTC and Micro ETH that are sized at 1/10th of a coin. 

Free Trading Imminent

First introduced by Robinhood in traditional stock markets, fee-free trading is becoming more and more prominent in the US - and it’s now making its way to crypto. 

Binance.us just eliminated fees on BTC/USD trades and some other tokens. Upon Binance’s announcement on June 22nd of fee free trading in the US, coinbase shares fell 10%. 

With the rise of competition in the Crypto trading markets, analysts warn that Coinbase’s main source of revenue, trading fees, will be hard to protect.

Market Drops and Lay Offs 

Cryptocurrency markets have been hit particularly hard this year. Bitcoin fell below $18,000 for the first time since 2020. This comes just 8 months after an all time high of $69,000+ in November 2021. 

These factors have caused many blockchain companies to cut costs and enact layoffs. 

Coinbase will be laying off nearly 1,100 employees as their CEO, Brain Armstrong, cites concerns of “entering a recession after a 10+ year economic boom.”

Moody’s Downgrade

Despite the cost cutting with lay offs and new product introduction of derivatives, Moody’s downgraded their outlook on Coinbase Global’s stock citing increased competition and decreased revenue due to crypto’s plummeting prices. 

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