Coinbase, one of the world’s largest cryptocurrency exchanges by volume, is launching its derivatives exchange, known as Coinbase Derivatives Exchange, formerly known as FairX, this month, in the hopes of attracting more retail traders.

The CFTC-regulated futures exchange will launch its derivatives product, Nano Bitcoin futures (BIT), on June 27, according to a statement sent to CoinDesk. The statement further said, “The crypto derivatives market represents $3 Trillion in volume worldwide and we believe that additional product development and accessibility will unlock significant growth.”

Coinbase said it’s also awaiting regulatory approval on its own futures commission merchant (FCM) license to offer margined futures contracts for its clients.

  • The launch comes at a highly volatile period in the crypto market, set off by a chain of events which includes the collapse of Terra’s LUNA, crypto lender Celsius and crypto fund Three Arrows Capital (3AC). Bitcoin’s price has fallen about 56% this year, while Ethereum’s native token ether is down roughly 70%.
  • Coinbase bought FairX earlier this year, to launch crypto derivatives products. FairX launched its futures exchange platform in May 2021 after receiving regulatory approvals in late 2020.
  • Futures contracts are smaller in size, require less upfront capital than traditional bitcoin futures products and can be used as a hedge for trading strategies for both institutional and retail traders.
  • According to the statement, “At 1/100th of the size of a Bitcoin, it requires less upfront capital than traditional futures products and creates a real opportunity for significant expansion of retail participation in US regulated crypto futures markets.”
  • However, not everyone sees derivatives as a product suitable for retail traders. Most recently, a senior Dutch financial regulator said that crypto derivatives trading should be restricted to wholesale markets only, citing risks of manipulation and other criminal activity.
  • In 2020, The U.K. watchdog, Financial Conduct Authority (FCA), banned crypto derivatives for retail consumers, saying that the products are ill-suited due to the risks they pose.

However, large banks such as Nomura, Goldman Sachs and JPMorgan have already started trading crypto derivative contracts, as a chance for their clients to trade the volatility in the crypto market and protect against downside risks.

The BIT futures will be available for trading via several leading broker intermediaries, including retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate, and clearing firms – ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam and Wedbush, according to the statement.

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