This week, Coinbase announced that all margin trading would be ended effective on Nov. 25. They are citing the reason as being due to CFTC guidelines and regulations that prevent them from offering the service. All open positions will be honored, but the functionality will be removed altogether when existing positions expire next month.
Margin trading is quite popular in cryptocurrency, because it allows users the ability to borrow funds from the exchange that they are trading on to cover the cost. This allows traders to greatly increase their profits or losses. It is considered a risky, but potentially very rewarding way to trade.
It’s not clear which exact part of the CFTC “guidance” that Coinbase is referring to, but it is clear that Coinbase believes that they cannot continue to legally offer these products and services to their customers. The regulations by the CFTC also took down some of the functionality of Bitfinex.
Coinbase believes that the CFTC guidance is impossible to comply with because of its broad language. CFTC regulations state that customers cannot receive “actual delivery” of cryptocurrency through margin trading, which would mean that Coinbase would not be allowed to distribute cryptocurrency that was gained through margin trading. This renders their margin trading products useless.
If Coinbase wanted to offer leveraged trading products again, they would have to register as a commodities exchange, which it does not appear willing to do.
Coinbase’s blog post contained this statement: “We believe clear, common-sense regulations for margin lending products are needed to protect and provide peace of mind to U.S. customers. We look forward to working closely with regulators to achieve this goal.”
