Coinbase plans to set up an offshore exchange amid increasing regulatory oversight in the U.S.
Bloomberg said on Friday that the leading crypto exchange Coinbase is looking to establish a new offshore cryptocurrency trading platform. However, the source didn't clarify the type of products that the new platform would support.
According to the news, the platform is focused on perpetual future contracts, a popular smart contract in cryptocurrency.
Perpetual contracts are based on the Virtual Automated Market Maker mechanism to provide liquidity, creating the most accessible and secure decentralized derivatives trades.
Coinbase Goes Offshore
Coinbase has reportedly been in discussions with some of its partners and market makers for the setup of the new business outside the US jurisdictions. Coinbase hasn't given any comment on the news at the time of writing.
In January, the exchange announced the acquisition of FairX, a derivatives exchange regulated by the Commodity Futures Trading Commission (CFTC).
The purchase aims to establish a regulated crypto futures marketplace for Coinbase's millions of users. Additionally, the company shared its plan to add derivatives trading to the company's product framework to ultimately bring great benefits to investors.
Derivatives trading has become increasingly accessible on major exchanges such as Binance, Bybit, Huobi, and OKEx.
Among these exchanges, Binance is currently leading the pack in this specific segment, with defunct exchange FTX only able to account for 25% of the market share at its peak.
Running Out of Room
Yet, there is still a significant amount of untapped potential in this market, and Coinbase is poised to take advantage of it.
With 56 million active users, 8.8 million of whom execute at least one transaction per month, Coinbase is already a major player in the cryptocurrency trading space.
Furthermore, its largest cryptocurrency trading platform is based in the US, and it boasts a user base of 100 million people worldwide.
By entering the derivatives trading market, Coinbase will be able to immediately establish itself as one of the top derivatives exchanges. This move could also help to solidify its position as a major player in the cryptocurrency industry.
US Market Loses Ground
The American dream is often associated with innovation, progress, and a thriving economy.
However, recent regulatory crackdowns on cryptocurrencies have led some to question whether the American dream is turning into an American scream.
The situation surrounding cryptocurrency regulation in the United States has caused concern in the industry, with some viewing it as a hindrance to growth rather than a facilitator of progress.
Nexo's decision to depart from the US market after months of dialogue with regulators highlights the challenges faced by businesses operating in the country.
Similarly, Binance has reportedly considered cutting ties with US business partners due to regulatory uncertainties.
The Securities and Exchange Commission's (SEC) principles, while intended to protect users, have often been viewed negatively by industry participants. The fear of being hit with accusations of unforeseen problems has been a major concern for many entities.
Officials in the US have been wary of the cryptocurrency sector's potential to undermine global money laundering prevention measures. However, the lack of adequate scrutiny on par with other financial services entities is a concern.
Over the past decade, the US has taken steps to create a regulatory framework for the industry, with New York being one of the first states to require crypto companies to apply for a business license to operate in the state.
However, the potential ban on crypto staking and other regulatory pressures could push innovation and companies out of the US, potentially leading to a loss of technological edge.
Coinbase has made significant efforts to comply with US regulations, even delisting Binance USD (BUSD) under pressure. Despite the challenges, it remains to be seen whether the US will be able to strike a balance between regulation and growth in the cryptocurrency industry.
It is indeed true that the cryptocurrency industry requires a certain level of regulation. However, it is crucial that these regulations are appropriate and do not impede the industry's progress.
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