US-based cryptocurrency exchange Coinbase stopped margin trading services on the Coinbase Pro platform. The exchange highlighted new guidance from the Commodity Futures Trading Commission (CFTC) as the reason behind the termination.
End to margin trading
The exchange said today that it will not facilitate margin trading on its Coinbase Pro platform. The service will be terminated on November 25 at 5 pm ET. It noted that the
“product will be taken offline in December once all existing margin positions have expired.”
Paul Grewal, the chief legal officer of Coinbase, wrote in a blog post,
“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.”
Keeping up with the regulators
Coinbase Pro was working with margin trading and onboarding users to help them understand the concepts and risks associated with it. In this type of trading, an investor borrows funds from Coinbase to make trades for more money than they own.
With the new guidance from CFTC, Coinbase would be required to register with the regulator if it wants to continue providing these services to the users. However, other exchanges that provide margin trading like Kraken have not made any announcements in this regard yet.
The guidance is related to actual delivery and suggests that a platform or its affiliated entities cannot exercise any type of control over a digital asset after it has been delivered to the user as mentioned in the margin contract.
Coinbase was under inquiry from CFTC in 2017 when its margin trading services experienced a flash crash. The services were relaunched in 2020 only to be shutdown by the end of the year. It will have to wait for another few years to ensure that it provides a regulated margin trading service to the users.
Remember, all trading carries risk. Past performance is no guarantee of future results.