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Coinbase Will disable All Margin Trading Tomorrow, Citing CFTC Guidance

Crypto exchange Coinbase wants to end all margin trading effective Nov. 25, 2020, because of the recent regulations by the Commodity Futures Trading Commission, or CFTC.

The San Francisco-based trading platform announced Tuesday that it would prevent customers from placing new margin trades starting 2 p.m. PT (22:00 UTC) on November 25, while concurrently canceling any open limit orders.

According to coindesk, Coinbase will end the margin trading feature in December, once existing positions expire. When customers trade on margin, they’re efficiently 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 increasing profits or losses.

The exchange pointed to “recent guidance” from the CFTC, relating to the Commission’s March guidance around “actual delivery” of digital assets as the reason for this decision, but didn’t exactly 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 supply 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.

According to the guidance, assets purchased through leverage or a margin contract cannot be liquidated.

According to 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.

The final guidance approved in 2020 noted that the offeror, seller or affiliated entities cannot have any interest, legal right or control over the commodity.

Basically, Coinbase would have to register with the CFTC as a commodities exchange if it wants to continue offering leveraged products.

“We believe clear, common-sense regulations for margin lending products are needed to protect and provide peace of mind to U.S. customers,” Coinbase’s blog post stated. “We look forward to working closely with regulators to achieve this goal.”

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