Popular cryptocurrency exchange, Coinbase, has announced its plan to stop margin trading in response to CFTC guidelines. This means that the crypto platform will no longer offer margin trading services on Coinbase Pro starting from 2 pm PT on 25 November.
According to the official announcement, the exchange reinstated that it is not removing its existing margin positions entirely. But customers are advised to close existing orders by December as the service will be offline after the expiration of current margin positions.
Coinbase, however, aims to collaborate with regulators in the future to comply with all requirements. The company also highlighted the need for a clear regulatory framework for margin lending products to protect the interest of customers in the United States.
Coinbase and margin trading regulations
Coinbase is a San Francisco-based trading platform, serving 32 countries, and has bitcoin transactions and storage in 190 countries worldwide. In 2017, the company experienced a flash crash in margin trading services, which prompted CFTC to conduct an inquiry into the issue. Although the exchange reintroduced its margin trading services again in 2020, it seems like the company needs to suspend such services for a few more years before relaunching.
Following the announcement, the Chief Legal Officer of Coinbase, Paul Grewal, said:
“In response to the new guidelines from the Commodity Future Trading Commission (CFTC), we are suspending our margin trading product. For customers using credit, all open limit orders will no longer be available, as the product will be taken offline in December when all existing margin positions will expire. We also believe that clear regulations for margin lending products are necessary to guarantee the safety of U.S customers. Therefore, we look forward to collaborating with regulators to achieve this goal.”
The concept of margin trading allows an investor to borrow funds from a third party to trade. Hence, the Commodities and Futures Trading Commission introduced strict regulations to protect investors from potential losses using margin trading. Coinbase also took some time to explain the merits and demerits of margin trading, but it seems like the guidelines are not enough reasons to adhere to the regulatory requirements of CFTC at this point.