Coinbase Launches Perpetual Futures Trading: What You Need to Know

Well, today is the day Coinbase is rolling out perpetual futures trading.

This type of financial derivative contract allows investors to speculate the price of an underlying asset without needing to own the token itself.

Well, joining me live here at the New York Stock Exchange this morning is John Agostino, institutional head of strategy for Coinbase.

As well as board member for A.

So John, great to have you here.

Thank you so much for joining me.

Thanks for having me.

Well, first and foremost, you were here last week and a lot has changed since you were last on, given that the Genius Act passed and Trump signed it at the end of last week.

But tell me how long it took to get here, especially when we're talking about futures.

So it's been an extraordinary path, and you have after me you have amazing guests on who can really dive into what's happening on the Genius Act and so I'll let them cover that and there's no one better than they, but it feels like this sort of coiled spring is sort of being released after years of being pushed down.

So it's really fun and exciting.

So as you mentioned, today is the launch of Coinbase's Perpetual like, and I'll explain why we say like.

Futures contracts through the first ever registered DCM designated contract market coin-based derivatives exchange and registered fully registered in the US Futures Commission merchant coin-based financial markets.

So that's a very, very exciting thing.

Now the reason it's exciting is that for almost all asset classes, the derivatives market tends to be multiply, multiples larger than the spot market.

So for example, this Amazing bastion of capitalism we have behind us.

The entire US equities market is roughly around $60 trillion.

It's all the stocks trading on all the exchanges.

The equities derivatives market is about $210 trillion.

Now for other asset classes like commodities where I come from, that multiple is even larger.

So the PERPS market, which is by far the largest futures market, represents orders of magnitude more potential business than spot crypto trading.

So it's a really, really exciting time.

Yeah, and speaking of which, we saw the crypto market surge past that $4 trillion cap as well, so that is significant.

But when you're talking curb like, can you walk us through?

Yeah, so because of a of a to conform with US law, we can't have the future never expire, which is what perpetuals are by definition they never expire.

So the coin-based instrument expires after 5 years.

So it gives you for that period of time the same type.

Of risk and economic exposure, but it conforms to US law, and there's this really fascinating mathematical concept called the funding rate which keeps the longs and the shorts balanced that resets every it's checked every 3 minutes and twice a day variation and end of a margin is called from the longs and the shorts to keep the entire market into balance.

So we have this now offered in the US.

It can be offered to market makers in the US, Cayman Islands, and BVI.

We have, I think, anywhere from 7 to 10 FCMs that are offering it to.

Clients, market makers, professional market makers, retail traders, everyone can get into the game now and trade this massive, massive derivatives market for cryptocurrencies.

And John, Bitcoin and Ethereum for the coinba launch and John, I know you come from a commodities background and sometimes when we're talking about retail investing, I think comparisons may be helpful to viewers out there who might not be as familiar with crypto.

So when we're talking about this, tell us about some of the risks.

Sure, look, any derivative by its very nature is levered.

It's levered because part of the reason they're attractive to trade derivatives is it usually costs less to enter into an equivalent position than it would to buy the underlying spot, the thing that it references.

So because it costs less, you've got that leverage of the notion of value versus the premium that you paid in.

Now I don't want to get too much into detail because depending on whether you're long or short or covered or not, it can be that the risks are very different, but as always, when you're dealing with more levered products that trade somewhat thinly, you have the potential for being stopped out and being called out of your position or you have the potential in theory if you're on the wrong side of that trade for very, very large losses.

If you own an asset, the most you can lose is the price of that asset.

If you're short a derivative, in theory you could lose an infinite amount of.

So they're they're more complex instruments.

They should be studied.

You should understand exactly the risk you're getting into, but that, that, that increased risk tends to come from two things.

One is the implied leverage that's in that position.

And then also if it's a thinly traded derivative, you could have gaps up and gaps down in pricing.

Yeah, and John, you and I could do an educational podcast on this whole subject.

Take your time.

It's if you're not familiar with derivatives, take your time.

There are great resources.

Go on the Coinbase website.

There are other wonderful resources.

Learn the basics.

Start small, start with the simplest types of structures, and learn it like you would any other trading activity.

OK, John, well, great to have you here.

Thank you so much for joining me and hope to have you back here soon.

See you soon.

Thank you so much.