Coinbase Branches Out, Introduce Futures Contracts for Oil & Gold

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  • Coinbase is introducing futures contracts for oil and gold, with trading starting from June 3.
  • By expanding into commodities futures, Coinbase aims to diversify its products.
  • Operating under the Commodities and Futures Trading Commission, Coinbase Derivatives complies with regulatory standards.
  • Bank of America has recently upgraded Coinbase's rating from underperform to neutral.
  • Coinbase is actively working to establish and increase liquidity for its new futures offerings, aiming to attract both retail and institutional investors.

Leading crypto exchange Coinbase is expanding its offerings beyond digital assets by venturing into the world of oil and gold futures.

The futures contracts, which cover 10 barrels of oil and one troy ounce of gold, will be available for trading starting June 3.

Coinbase Derivatives, a subsidiary of Coinbase, announced the launch of retail-sized futures contracts for oil and gold, citing growing demand among its users for traditional market products.

The move to introduce futures contracts for oil and gold is seen as another effort by Coinbase to expand its operations. It aims to cater to investors seeking to hedge their cryptocurrency positions.

Coinbase said: “At Coinbase Derivatives, we’re committed to democratizing access to financial markets and providing our users with innovative trading opportunities within a regulated framework.”

Coinbase Continues to Expand Derivatives Offerings

Coinbase has been actively expanding its derivatives offerings. Earlier this year, the platform launched 15 perpetual futures contracts on its main exchange, with a focus on gaining liquidity and market share.

The exchange wrote:

“Our main objective in introducing new futures contracts is to provide diversified markets that facilitate price discovery and risk management.”

While Coinbase is known for its expertise in cryptocurrency trading, it is not the first crypto exchange to venture into commodities futures. FTX, a previous player in the market, had launched futures markets for various commodities, including crude oil and lumber, before facing bankruptcy in 2022.

Coinbase aims to learn from the experiences of its predecessors and leverage its regulatory compliance measures to ensure a successful foray into traditional market futures.

Coinbase Derivatives, launched in June 2023, initially offered futures contracts for Bitcoin and Ethereum. As a US-based derivatives exchange, it operates under the watchful eye of the Commodities and Futures Trading Commission, adhering to regulatory requirements.

While Coinbase has taken a cautious approach to expanding its futures markets, it has recently accelerated its efforts. In April, it introduced futures markets for Bitcoin Cash, Litecoin, and Dogecoin, albeit with relatively modest trading volumes.

Establishing liquidity in new markets takes time, and Coinbase is no exception. The platform is working to build a robust liquidity pool for its futures offerings, aiming to attract traders who seek exposure to both digital assets and traditional markets.

“We believe that offering our participants access to futures on traditional commodities like oil and gold, alongside crypto commodities is a natural expansion of our product suite,” the platform said.

“We’re eager to see these contracts mature and the liquidity they will bring to retail and institutional investors in a regulated manner.”

Analysts Upgrade Coinbase Rating

Coinbase has received a positive boost as analysts upgraded their rating on the company’s shares. Last week, Bank of America (BAC) upgraded Coinbase from underperform to neutral and increased its price target from $110 to $217.

Bank of America’s decision to upgrade Coinbase was based on several factors. Analysts, led by Mark McLaughlin, pointed to the favorable macro backdrop that has supported the cryptocurrency markets and led to increased trading volumes.

They also highlighted Coinbase’s commitment to expense discipline and diversification as potential contributors to improved earnings. However, the analysts did acknowledge potential risks that could limit the stock’s upside.

One concern raised by Bank of America is Coinbase’s reliance on transaction revenue for profitability. Changes in market conditions could pose challenges for the company in the future.

Additionally, the ongoing lawsuit between Coinbase and the U.S. Securities and Exchange Commission (SEC) introduces regulatory uncertainty that could impact the company’s operations.

In addition to Bank of America, investment banking firm KBW has also increased its price target for Coinbase. Last month, KBW praised Coinbase for offering investors a unique opportunity to tap into the long-term growth potential of the crypto economy.

KBW raised its Coinbase price target from $160 to $230 while maintaining its market performance rating.

The Bottom Line

Coinbase is broadening its scope of offering by introducing futures contracts for oil and gold, with trading set to start on June 3.

The initiative is part of Coinbase’s broader plan to expand its derivatives offerings, having already launched several perpetual futures contracts earlier this year.

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