Coinbase has officially launched its Margin Trading service on the exchange's professional trading platform, Coinbase Pro. Eligible traders can now trade up to 3X leveraged orders on USD-quoted books, which allows users to amplify their trading results through borrowing money.
Coinbase's COO Emilie Choi told The Block in May that margin trading was on the way, but didn't reveal the exact leverage the service would feature.
Users in 23 US states now have the ability to borrow Cryptocurrencies , depositing their own digital assets as collateral. But if their losses exceed the value of their collateral, their positions are automatically liquidated.
Through a Risk Management system, Coinbase Pro can allocate different levels of risk for different tokens. The maximum leverage or initial margin requirements can be adjusted according to the token's associated risk.
This feature is geared toward both individual and institutional traders. That's because Coinbase has launched the feature attempting to fit within the boundaries of both regulations and risk considerations.
New facets of business to warrant valuation
For individuals, they have to certify that they meet certain activity qualifications to be allowed to trade on margin, measured by recent trades, balances, and deposit and withdrawal transactions.
For institutional customers, while the full list is here, the requirements only include things like being based in one of the 43 states or nine international countries where Coinbase currently offers margin for institutions. It's worth to note that Coinbase did not require minimums to be invested on a discretionary basis in order to allow customers to trade on margin.
Buying or selling on margin, however, is not new at Coinbase. The San Francisco firm introduced the feature through its old brand GDAX but was suspended in summer 2017 following a flash crash that caused ether to fall from above $300 to just $0.10 in a second. The price bounced back seconds later, but some investors lost their entire positions.
Since then, Coinbase has been moving slowly as uncertainty around margin-focused products has disallowed it from introducing a fully-fledged plan.
Although some other crypto exchanges offer margin trading, including Bitfinex and OKEX, they don't offer the service in the US, and most of them already barred Americans from using their products.
Somehow, reintroducing leveraged trading may help Coinbase diversify revenue streams amid a downtrend in its operating and financial metrics, which may become a necessity to warrant its $8 billion valuation.
