Coinbase’s VP of Business, Data and International Ventures, Emilie Choi, in a recent podcast hinted at the company’s next big move being ‘margin trading’. She said that while attending a The Scoop podcast by The Block. Choi said in the podcast:
Margin lend borrow is going to be the next big step for us, especially on the active trader side. There’s a clear demand for that.
Margin Trading is a trade practice being used in the financial markets all around the world. Using margin trading, users can buy a lot more stocks by borrowing money from a broker than they would’ve been able to buy with their own money. It is more of a loan from a brokerage, to be paid back with interest.
Choi explained that a plan has not been finalized but people inside the company have begun talking about it, and that the company is working on a project that would not put their customers at risk. The company is also debating the particulars like whether the exchange will trade futures and option or not. Regulations in the US are also not clear. Coinbase is also discussing other issues, as Emilie said:
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 is being discussed.
In the interview, while talking about how Coinbase watches the activity in the crypto space to provide their users with the best services, Emilie said:
“What we do is we watch activity happening in the decentralized financial space, and we think of it oftentimes, the first user we think about is the active trader on Coinbase pro for a lot of these different applications. And if you see the activity that’s happening and things like margin, borrow, lend, derivative constructs that are happening on other platforms; there’s a lot of activity, and there’s a lot of revenue being generated”.
However, she also added that Coinbase is careful with their user’s money and won’t indulge in outrageous practices:
We are never going to be the place where there’s 100X leverage, right? We’re not going to offer a casino to our users because when we’re playing with people’s money, we’re going to be a lot more careful with it.
US laws are stringent for margin trading. Traders need to have a margin account to trade margins; a regular cash account used for trading won’t do. They are also required to have an initial deposit of $2,000 minimum. There is a cap on the amount of money being borrowed; no trader can buy more than 50% of the purchase price of the stock. While some brokerages may ask traders to have more than 50% of the stock price, the laws in the United States only require 50%.
Competitors in Margin Trading
BitMex has been offering margin trading for quite some time now; however, the company provides margin trading outside of the US. The company hasn’t been able to receive the necessary approval from US authorities. It is reported that BitMex at the peak of the bitcoin boom had almost 10 billion dollars’ worth of bitcoin being traded over the platform. However, BitMex doesn’t bother Coinbase as the company is looking to launch its services in the United States as indicated by Emilie’s interview. Another crypto exchange Binance, on the other hand is gearing up to launch margin trading on their platform. Just a week earlier, the company had tweeted a photo of their platform’s new dark mode which will roll out in a few weeks; however, people were quick to point out the margin trading option in the new platform.
— Binance (@binance) May 24, 2019
Binance’s margin trading option won’t launch for months and is still under development. Seeing the massive retail audience that Binance already has, the launch may be a great success. Emilie said about Binance’s competition in the interview:
We couldn’t probably be more differentiated than them in terms of the focus on the fiat to the crypto bridge and being that safely trusted center of the crypto economy. So, I think they’re playing one game, and we’re playing another.
However, Binance is not the competition Coinbase should be worried about as both the companies should be worried about big banks diving into the sector. According to crypto research analyst Ahmad Khokhar, the big banks will move into the market now that crypto is going mainstream and acquire or drive both these companies out of business.
At the end of the day, who you align with will come down to fees/service. https://t.co/WP6BM4gGAt
— Ahmad Khokhar (@khokhar_ahmad) May 29, 2019