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Coinbase announced that customers will no longer be able to use the platform’s margin trading feature starting today. The San Francisco, California-based crypto exchange said that the move is due to regulations by the Commodity Futures Trading Commission (CFTC).
On Tuesday, November 24, Coinbase announced that it will no longer allow customers to place new margin trades starting at 2 p.m. PT (22:00 UTC) on Wednesday, November 25, 2020, Coindesk reported. The company also added that it will be entirely removing the margin trading feature starting December 2020, once existing positions expire.
“In response to new guidance from the Commodity Futures Trading Commission, we are disabling our margin trading product,” Coinbase Chief Lega Officer Paul Grewal wrote in a blog post. “For customers using credit, all open limit orders will be canceled at this time. The product will be taken offline in December once all existing margin positions have expired.”
The cryptocurrency exchange is referring to CFTC’s recent March guidance that touched on the “actual delivery” of digital assets. The guidance, which came after the 2016 enforcement action against crypto exchange Bitfinex, set the rules on “when a customer can be said to have legally taken control of a crypto.”
The guidance also includes those cryptocurrencies obtained through a margin or leveraged product. The problem is that crypto-assets acquired through a margin contract, such as through Coinbase’s margin trading, cannot be immediately liquidated giving rise to the question of whether or not the customer already has control over the asset at that point.
In a previous comment letter to the CFTC about the then-proposed guidelines, Coinbase tried to question the point. “Requiring unfettered ability to transfer digital assets would effectively mean that U.S. entities and regulated entities, or entities using cold storage or other asset protection methods, could not hold digital assets acquired through margined transactions,” Coinbase’s former Chief Legal and Risk Officer Mike Lempres wrote to the commission in 2018.
However, the final guidance released this year mandates that the seller or affiliated entities “cannot have any interest, legal right or control over the commodity.” It now appears that with its removal of the margin trading feature, Coinbase is saying that it is difficult to comply with the new CFTC guidance.
It remains to be seen just how Coinbase’s move will affect the crypto market but there are those who predict that it might dampen the recent rally, according to Cointelegraph. “Based on CFTC guidance Coinbase Pro is removing margin trading,” cryptocurrency analyst Adam Cochran wrote on Twitter. “Huge blow to US crypto and likely to drive price impact as it will take a lot of money off the table. Wonder how long before other US exchanges are forced to comply.”
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