Coinbase must suspend its margin trading following a request from the CFTC, a U.S. regulator

Margin trading at Coinbase is over (or almost)! The exchange is forced to stop offering margin trading to its clients, to avoid incurring the wrath of the CFTC.

Curtain on margin trading at Coinbase

On November 24, 2020, Coinbase announces that it will prevent clients from placing margin trades on November 25, 2020 from 10:00 p.m. UTC, as a result of recent CFTC regulations. The platform also plans to cancel all limit orders.

Coinbase will stop margin trading in December 2020, when all open trades will have expired.

In particular, the exchange has indicated its inability to comply with the CFTC's March 2020 guidance on the "effective delivery" of digital assets.

Margin trading is a borrowing for clients and not a definitive acquisition; in other words, the delivery of a cryptomony to a buyer via such a transaction does not take place because the client has not legally taken control of the cryptomony.

However, CFTC rules provide that neither Coinbase nor any of its affiliated entities can have control over a cryptogram acquired through margin trading.

Coinbase had previously challenged this provision in a letter to the CFTC, in which the exchange claimed the right for its affiliates to hold cryptos.

In order to continue to offer its clients leveraged products or margin trading under the current legal environment, Coinbase would have to register with the CFTC as a commodity exchange.

BitMEX is not an example to be followed.

Coinbase clients will now have to turn to other exchanges such as Kraken - also based in the US and therefore likely to address the issue of "effective delivery" of digital assets - or Binance, for margin trading.

Coinbase does not want to take legal risks to avoid finding itself under the legal spotlight of the American regulator.

The CFTC had announced in a press release dated October 1, 2020, that the commission has filed a civil claim against BitMEX for failure to register and lack of KYC procedures and anti-AML devices.

A possible comeback in margin trading for Coinbase? The CFTC's new directions will likely cause casualties among exchanges reluctant to cooperate with U.S. authorities and comply with regulations. Coinbase "loves" working with the Internal Revenue Service, the DEA.