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Coinbase Clarifies Crypto Shorting Confusion: “It’s Only For Our Clients”

Published August 23, 2023 11:20 AM
Teuta Franjkovic
Published August 23, 2023 11:20 AM
Key Takeaways
  • Coinbase told CCN it was not shorting cryptos to increase its revenue.
  • Exchange clarified it doesn’t actually take out the original customers’ positions.
  • Coinbase recently acquired a license as a registered Futures Commission Merchant

In its recent quarterly public reports  disclosed to the SEC and investors, Coinbase said it has been shorting cryptocurrencies using financial derivatives tactics. This sent shockwaves through the space as many felt Coinbase was betting on crypto to fail.

A short position usually benefits from assets declining prices and is established in opposition to the prevailing market trend.

However, speaking to CCN, Coinbase has clarified its position

For Clients Only

Following the recent announcement of Coinbase’s entry into cryptocurrency futures marketing, rumors have emerged that the company might employ this technology for “front-running” investors. This concern stems from Coinbase’s existing utilization of such technology not only to enhance corporate revenue but also as a provider of futures contracts.

Just as a reminder, The National Futures Association, a CFTC-designated SRO, recently granted Coinbase’s license to trade futures contracts.

To clarify these rumors, CCN spoke with Garrett Balliett from Corporate Communications at Coinbase about the rumors that Coinbase is shorting the crypto market.

“We offer derivatives and futures products to our clients and institutional as well, particularly institutional clients that do provide those services,” he said.

“But it’s somewhat conflated because that isn’t also the same as us actually taking out those positions ourselves. But while we may be opening and closing positions for customers, we aren’t actually taking out the original position for a Coinbase.”

Regarding the indications about the exchange shorting the crypto market in order to increase revenue for itself, Baillett said that was that’s not the case.

“The target is always to increase to provide more products and services to users and allowing them to engage in derivatives and now features of trading but not coin-based positions to increase our own like bottom line for example,” he explained.

Futures License – A Major Milestone Achieved

Short positions can be initiated by employing futures contracts with executable orders that yield gains when the price falls below the spot market trading value.

Another way to open them is borrowing cryptocurrencies by leveraging other assets as collateral, with the anticipation of repurchasing the assets at a lower price to cover the loan and capitalize on the price discrepancy, ultimately reclaiming the collateral.

According to the company’s announcement :

“At Coinbase, we believe regulation and transparency are critical and build confidence for individual customers and institutions. Access to a CFTC-regulated crypto derivatives market is essential to unlocking significant growth and enabling broader participation in the cryptoeconomy.”

The company applied for a license with the NFA back in 2021 to register an FCM.

“Our team has worked with regulators since then to ensure we will comply with all the necessary regulations and that our FCM’s business model meets the CFTC’s customer protection requirements.”

Coinbase also explained  why acquiring the license was a major milestone in the company’s journey.

“The global crypto derivatives market represents ~75% of crypto trading volume worldwide and is a critical trader access point. Being able to express long and short positions, investors also use derivatives to manage risk on their underlying crypto assets,” the company concluded .

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