Crypto exchange Coinbase plans to end all margin trading effective Nov. 25, 2020, due to recent regulations by the Commodity Futures Trading Commission (CFTC).
The San Francisco-based trading platform announced Tuesday that it would prevent customers from placing new margin trades beginning at 2 p.m. PT (22:00 UTC) on Wednesday, while simultaneously canceling any open limit orders.
Coinbase will end the margin trading feature entirely next month, once existing positions expire. When customers trade on margin, they’re effectively borrowing funds from the exchange or broker to cover the cost of an investment in an asset such as a security or a cryptocurrency. This allows traders to leverage their positions, thus amplifying profits – or losses.
The exchange pointed to “recent guidance” from the CFTC, referring to the Commission’s March guidance around “actual delivery” of digital assets as the reason for this decision, but didn’t specify which aspect of the guidance led to the move.
That guidance, which has its roots in a 2016 enforcement action against Bitfinex, sought to provide rules around when a customer can be said to have legally taken control of a cryptocurrency, including when the customer acquires the crypto through a margin or leveraged product.
Assets purchased through leverage or a margin contract cannot be liquidated, according to the guidance.
Coinbase appears to be saying that it is difficult, if not impossible, for it to comply with a CFTC requirement that neither it nor any affiliated entity can have any sort of control over a cryptocurrency once it’s been delivered in accordance with the terms of a margin contract.
Under the terms of the CFTC’s guidance, “actual delivery” has occurred when a customer controls the cryptocurrency purchased, including if it was acquired via a margin or leveraged product, and the seller has no control over the cryptocurrency in question.
Coinbase has taken issue with this…