Coinbase to Acquire Cyprus-Based Company for Crypto Derivatives in the EU
Major U.S. cryptocurrency exchange Coinbase has announced its plans to acquire a Cyprus-based holding company in order to enter the crypto derivatives market in the European Union (EU). The acquisition, which is subject to regulatory approval, will grant Coinbase a MiFID II license, allowing the exchange to offer futures, options, and other derivatives linked to cryptocurrencies like bitcoin and ether.
Keypoints
- Coinbase aims to offer crypto derivatives in the EU through the acquisition of a Cyprus-based company
- The acquisition will provide Coinbase with a MiFID II license for offering investment services in EU countries
- Crypto derivatives account for 75% of global crypto trading volume
- Expanding into crypto derivatives would allow Coinbase to offer more than just spot trading
- The acquisition is pending regulatory approval and is expected to be finalized later this year
In a blog post on Friday, Coinbase highlighted that the MiFID II license would enable them to expand access to their derivatives products for eligible European customers in select EU countries. However, before launching these offerings, Coinbase’s Cyprus-based entity must meet the exchange’s compliance standards regarding anti-money laundering, customer transparency, and sanctions screening.
Crypto derivatives, including futures contracts and options, currently make up approximately 75% of total crypto asset trading volumes worldwide. By entering this market, Coinbase sees a significant strategic opportunity as it faces challenges in its U.S. retail business due to market conditions and increased regulatory scrutiny.
While Coinbase has primarily focused on enabling users to buy, sell, and hold cryptocurrencies like bitcoin and ether, there has been growing demand from European institutions and sophisticated traders for more advanced crypto risk management tools. With the acquisition of an EU-licensed company, Coinbase positions itself to cater to this demand and tap into this lucrative market.
Furthermore, regulated access to crypto derivatives aligns with Coinbase’s efforts to expand its institutional clientele. The exchange has been actively targeting hedge funds, banks, high-frequency traders, and other institutional investors who are interested in larger trade sizes and more complex crypto-linked financial products.
This announcement from Coinbase comes shortly after rival exchange Kraken abandoned its pursuit of a U.S. banking charter due to regulatory pushback. This reinforces the challenges faced by exchanges in obtaining regulatory approval for crypto derivatives offerings aimed at U.S. retail investors. For now, Coinbase’s primary path to enter this market is through international expansion.
This move is part of Coinbase’s broader strategy to accelerate its growth in Europe ahead of upcoming EU crypto regulations in 2024. The exchange intends to establish Ireland as its compliance hub for the bloc’s new Markets in Crypto Assets (MiCA) framework. By becoming a fully licensed MiFID II firm, Coinbase strengthens its position as it works towards full MiCA registration over the next year.
Hot Take: Coinbase Expands into Lucrative Crypto Derivatives Market in the EU
Coinbase’s acquisition of a Cyprus-based company marks its entry into the highly profitable crypto derivatives market within the European Union. By obtaining a MiFID II license, Coinbase can offer futures, options, and other derivatives linked to cryptocurrencies like bitcoin and ether. This move allows Coinbase to diversify its services beyond spot trading and tap into the growing demand from European institutions and sophisticated traders for advanced crypto risk management tools. Moreover, it aligns with Coinbase’s goal of expanding its institutional clientele and positions the exchange for international growth while facing regulatory challenges in the U.S. retail market. Overall, this strategic move strengthens Coinbase’s presence in Europe and positions it for success amidst upcoming EU crypto regulations.
By
By
