As money continues to flow into Bitcoin and its altcoin brethren, cryptocurrency startups are looking to increase their revenue, both through dragging in more customers and creating more streams of business.
The latest fad in this search is seemingly margin trading, which entices risk-friendly traders to leverage their trades. After BitMEX, the Bitcoin derivatives platform that purportedly bred the U.K.’s youngest billionaire, has seen its volume swell to new heights, both Binance and Coinbase are looking to take their respective slices of the margin pie.
Coinbase Looking Into Crypto Margin
During a recent edition of “The Scoop”, trade publication The Block’s podcast, a Coinbase executive divulged some company secrets about its intent to dive into margin (leverage) trading. Emilie Choi, the vice president of business and data at Coinbase, noted that conversations have begun in regards to launching the feature. Choi elaborated:
“Margin, lend, borrow is definitely going to be a next big step for us, especially on the active trader side.”
Indeed, when volatility was minimal throughout much of 2018 and early-2019, the margin side of the cryptocurrency market heated up quick. While the executive seems all for margin, it is important to note that this medium of cryptocurrency trading has always been a topic of concern for U.S. regulators.
Case in point, Americans are technically not allowed to use BitMEX, with the platform actually suspending mostly U.S.-based analyst Tone Vays, whose income was then somewhat derived from the platform.
According to Choi, this regulator uncertainty around margin-focused products has disallowed Coinbase from fleshing out a fully-fledged plan. With multiple groups, like CoinCenter, and some politicians, like Congressman Jared Polis, pushing for more clarity in this space, however, Coinbase may soon get a regulatory stamp of approval or a no-go.
While Coinbase’s recent step into margin may have much to do with the demands of its customers, it may also have something to do with the company’s economic standing. Reuters reported earlier this year that the San Francisco firm had secured $520 million in revenues, 60% lower than Coinbase’s expectations.
What’s more, The Block suggests that Coinbase’s revenue could fall by 55% over the course of 2019, making new facets of business a necessity to continually warrant its $8 billion valuation.
A Profitable Subsector
Margin might be the perfect fit for Coinbase, especially with its waning profit figures in mind. As pointed out by popular cryptocurrency trader “The Crypto Dog”, BitMEX has traded over $140 billion worth of notional volume over the past 30 days. While this volume figure is levered, it still goes to show how popular margin trading is during both stagnant and volatile market cycles.
BitMEX’s success has allowed it to secure massive profits. As hinted at earlier, BitMEX’s co-founder is the U.K.’s youngest self-made billionaire. What’s more, Fundstrat Global Advisors’ Thomas Lee estimated in late 2018 that BitMEX made $1.2 billion in fiscal 2018. This profit alone would make the company more profitable than Hong Kong Exchanges & Clearing and Nasdaq, despite the nascency of the cryptocurrency space.
These profits have also enticed Binance, one of the world’s largest exchanges, to also take the plunge. Over the past few months, the exchange has begun to implement margin-related lines of code into its API and has begun to drop hints about the product.
Only recently did Binance’s Changpeng “CZ” Zhao come out to say that his firm will soon launch margin, barring that the beta test with whales and institutional players go well. Outspoken testers of the platform suggest that users of Binance’s margin feature, expected to first activate for Bitcoin, Ethereum, XRP, Tron, and Binance Coin, will need to submit identification before participating in margin-enabled markets.