April 19, 2024
Perpetual Futures: Coinbase's Bid to Capture Market Share Amidst Binance's Dominance
Latest Cryptocurrency News

Perpetual Futures: Coinbase’s Bid to Capture Market Share Amidst Binance’s Dominance

This week, the cryptocurrency exchange Coinbase (COIN) said that it has been given the go-ahead by Bermudan authorities to list perpetual futures for consumers outside of the United States.

The decision is not shocking; in April, Coinbase obtained a license in Bermuda to run a spot exchange in response to a gung-ho approach from American regulators with the eventual goal of launching a permanent futures platform.

A cash-settled derivatives contract known as a perpetual futures contract allows traders to use leverage to “long” or “short” an underlying asset. Perpetual swap traders pay a funding rate that equals the distinction between the mark and index price of the underlying asset instead of the contract terminating every month or quarter, maintaining pricing efficiency.

The total liquidity and trading volume in the cryptocurrency market fell when FTX, the biggest crypto futures platform at the time, went under last year. The market is still suffering from the fall over a year later, with little liquidity remaining, mostly concentrated within a small number of exchanges.

The crypto market is presently dominated by Binance in terms of trading volume. For derivatives, however, Binance earned $32 billion in trading volume over the previous 24 hours, translating to around $9.6 million in daily income from trading fees. Its spot market has seen activity of $6 billion, compared to Coinbase’s $1.2 billion. Coinbase can keep exceeding revenue projections if it can win some of this market share.

According to Kaiko analyst Riyad Carey, Coinbase is “well positioned” to take some of the market share that has been left behind.

“Regarding Coinbase, I do think that it’s well positioned to capture significant market share,” Carey stated. “Given Binance’s recent troubles, it stands to reason that larger traders and institutions may be skittish about holding significant funds on the exchange. On the other hand, Coinbase is one of the most trusted exchanges, which sets them up nicely.”

On Thursday, the price of Coinbase’s stock increased by 5.09%, indicating that investors are once again upbeat as the Nasdaq-listed exchange adds a new source of income to its repertoire.

Image: Flickr

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