While Wall Street will have to wait a bit longer until the SEC approves the first Bitcoin ETF, professional traders have been introduced to yet another channel through which to try bitcoin.
Coinbase, the most prominent Bitcoin exchange which also trades Ethereum’s cryptocurrency ether, now allows margin trading on its institutional trading platform, GDAX. With over $100 million in funding from investors such as the NYSE and Andreessen Horowitz to name a couple, it will probably be the one most institutional traders look at first and thus the highest probability some take a chance on leveraged cryptocurrency.
Leverage is at 3x, allowing traders on the Global Digital Asset Exchange to borrow funds which increase potential profits (as well as losses) by that same ratio. Leverage allows bold investors to make some gains on small market corrections or movements, and to strike it rich on sustained bull runs or bearish trends in bitcoin, ether, and litecoin.
The head of GDAX, Adam White, spoke on the announcement, stating:
“We are the first and only exchange to offer a product that meets the requirements of these professional and institutional traders having accounted for state and federal regulatory requirements.”
The introduction of this new feature remains compliant with regulatory standards, as does the rest of Coinbase operations. By offering the leveraged trading without a fee or interest, it cannot be classified as consumer lending, and thus circumvents the need for 50 state-specific money lending licenses.
The margin trading is only available to select US residents as of the time of writing, defined by the Commodity Exchange Act and who meet certain requirements. Outside of the US, it is a different story, open to all investors. GDAX hopes to be able to offer its margin trading to all US clients one day.
Since the ETF decision, Bitcoin volume has increased, showing heightened activity on markets. This suggests that traders looking to get into bitcoin are realizing they will have to access it directly, through an exchange.
White also stated that, in light of the ETF disapproval, institutional funds flow into bitcoin via regulated and trusted exchanges, such as GDAX:
“The institutional traders that were holding off, waiting for an ETF to be approved, are saying, ‘It’s probably not going to happen. If I want access to this new asset class I’ll have to go directly to bitcoin spot exchanges and the only exchanges these institutional traders are going to go to are the ones like GDAX that are based in the U.S., with an impeccable record, the trusted and secure exchanges that meet these regulatory requirements.”
By attracting professional traders and institutional investors with leverage for the three most widely-known cryptocurrencies, GDAX’s move is likely to contribute to an increase in trading volumes and precipitate greater interest in digital assets.