For years, the global bitcoin margin trading market has been dominated by BitMEX, which at one point reached a daily volume of $10 billion on May 12, a new record high for the company. Now, Coinbase and Binance are looking to enter the market.
The previous all-time high was reached in mid-2018 when BitMEX reached 1 million bitcoin in daily volume, equivalent to nearly $9 billion.
Speaking on The Block’s podcast The Scoop, Coinbase Vice President of Business, Data and International Emilie Choi has said the company is considering the addition of a margin trading feature on the platform.
CAN IT COMPETE AGAINST BINANCE AND BITMEX IN BITCOIN MARGIN TRADING?
As emphasized by Choi, Coinbase would need sufficient regulatory clarity from U.S. authorities before enabling margin trading for clients.
BitMEX has not allowed U.S. bitcoin traders from trading on its platform and it remains unclear whether Binance would serve U.S. users once it opens its highly anticipated margin trading platform in the near future.
A Binance representative told TechCrunch that the exchange is looking to launch its margin trading option in the near-term.
If BitMEX and Binance concentrate their margin trading operations in other major markets outside of the U.S., for Coinbase, the U.S. remains a viable market that is virtually untouched by other exchanges providing margin trading services.
We still need to figure that out because there’s not a lot of regulatory clarity there right now in the US. And so that that is being discussed.”
We couldn’t probably be more differentiated than them in terms of the focus on the fiat to crypto bridge and being that safe trusted center of the crypto economy. So I think they’re playing one game, we’re playing another.
WHY EXPLORE MARGIN TRADING?
Last year, Coinbase recorded total revenue of $520 million, a relatively large figure when compared to other exchanges apart from Binance and South Korea’s UPbit considering the brutal 16-month correction that hit the cryptocurrency market.
But, the company projected annual revenue of around $1.3 billion as of October 2018 according to a Bloomberg report, and $520 million is about 40 percent of its forecasted annual revenue.
In recent months, the valuation of the cryptocurrency market has surged by more than $100 billion as the bitcoin price spiked 135 percent year-to-date supplemented with a noticeable increase in interest from institutional and retail investors.
As the market regains momentum, exchanges are likely to see a large increase in volume, bringing back stability in their operations and cash flow.
Still, exchanges would need to continuously find new markets to penetrate into to expand and secure capital to prepare for an unexpected turn in market conditions as seen throughout 2018.
Coinbase successfully opening a margin trading operation that is fully regulated, compliant, and transparent under U.S. laws with the approval of regulators could enable the firm to secure a market that has been dismissed by many exchanges for several years due to regulatory uncertainty.
Through the listing of various alternative cryptocurrencies and tokens, Coinbase has demonstrated an intent to aggressively expand its operations and raise the sustainability of the business.
The exchange secured $300 million in additional investment from Tiger Global in October 2018 that would finance the exchange’s global expansion and the offering of more crypto assets.
“Coinbase will use this financing to accelerate: Global expansion–building the infrastructure between fiat and crypto in regulated markets around the world; Offering more crypto assets, quickly — we see hundreds of cryptocurrencies that could be added to our platform today and we will lay the groundwork to support thousands in the future,” Coinbase President and COO Asiff Hijri said.