Coinbase Backs Stock Perpetual Futures in Legal Brief Amid Regulatory Dispute

Coinbase and several other companies have submitted a legal brief to a US federal court, supporting the trading of perpetual futures tied to US stocks. This action opposes a lawsuit filed by the Capital Markets Alliance Association (CMAA), which argues that these contracts should be classified as security-based swaps, subject to stricter retail trading regulations.

The core of the dispute centers on the regulatory classification of perpetual futures, which allow traders to speculate on the price of an asset without a fixed expiration date. The CMAA contends that these products, as offered by platforms like Kalshi, are diverting business from traditional stock markets and that the Commodity Futures Trading Commission (CFTC) exceeded its authority in approving them. The alliance cited approximately $375 million in reported 24-hour notional trading volume for Kalshi’s stock perpetuals shortly after their launch, indicating significant market activity.

In a filing on Monday, Coinbase and its co-signatories argued against the CMAA’s request to temporarily halt trading. The court accepted the brief on Tuesday. This legal maneuver draws parallels to the earlier launch of similar products by BitMEX. Arthur Hayes, co-founder of BitMEX, expressed his support for Coinbase’s stance, noting that BitMEX faced a less welcoming reception when it introduced perpetual swaps in 2016. According to Arthur Hayes, Coinbase’s defense of these products a decade later felt like a form of regulation through imitation.

US District Judge Valerie Caproni previously denied the CMAA’s request for a temporary restraining order on November 3. Judge Caproni found that the alliance had not yet demonstrated likely irreparable harm but indicated that the CMAA was likely to succeed on its claim that the CFTC had exceeded its authority. The SEC reportedly submitted its own proposed court brief on Monday, opposing the CMAA’s request to halt trading. However, the agency’s brief left open whether it would set aside the exchanges’ listing rules and whether the contracts qualify as security futures or security-based swaps.

This legal battle highlights significant regulatory uncertainty surrounding stock perpetual futures. Experts like Wojciech Kaszycki, strategy adviser to BTCS SA, suggest that the absence of a fixed expiration date could complicate the classification of these contracts as traditional futures. Kaszycki also warned that an unfavorable ruling for the CFTC could push trading activity towards offshore and decentralized platforms, a scenario he described as the product simply changing address rather than disappearing.

The CMAA’s lawsuit claims that the CFTC approved the contracts without adequate explanation or addressing unresolved regulatory questions. The outcome of this case could have substantial implications for the future of derivative products trading, potentially influencing how similar instruments are regulated and where trading activity ultimately takes place. The legal dispute underscores a decade-long evolution in the regulation of derivative products, with Coinbase now defending a product category that BitMEX pioneered.

Broader Context

Source materials place the factual news in this context: Arthur Hayes said he was “flattered” by Coinbase’s defense of US stock perpetual futures, a decade after BitMEX launched perpetual swaps.