Cryptocurrency exchange Coinbase expects to end all trading on margin starting November 25, 2020, due to recent regulations from the Commodity Futures Trading Commission (CFTC).
The San Francisco-based trading platform announced on Tuesday that it will prevent clients from placing new margin trades starting at 2:00 PM PT (10:00 PM UTC) on Wednesday, while canceling any open limit orders.
Coinbase will end the margin trading function entirely next month once existing positions have expired. When clients trade on margin, they are actually borrowing funds from the exchange or broker to cover the cost of an investment in an asset such as a stock or cryptocurrency. This allows traders to leverage their positions, thereby amplifying their profits or losses.
The exchange pointed to the CFTC’s “recent guidance”, referring to the Commission’s March guidance on “actual delivery” of digital assets as the reason for this decision, but did not specify which aspect of the guide led to the transfer.
That guide, which has its roots in a 2016 law enforcement action against Bitfinex, sought to provide rules on when a customer can be said to have legally taken control of a cryptocurrency, even when the customer acquires the cryptocurrency through a margin or a leveraged product.
Assets purchased through leverage or a margin contract cannot be liquidated, according to the guide.