Unlock crypto rewards! Coinbase is launching a Bitcoin-backed credit card and CFTC-cleared perpetual futures for US customers. #Coinbase #Bitcoin #Crypto
Explanation in video
John: Hey everyone, John here! Welcome back to the blog where we break down all the latest happenings in the world of virtual currencies and blockchain, making it super simple for everyone to understand.
John: And as always, I’ve got my fantastic assistant, Lila, with me. Say hi, Lila!
Lila: Hi everyone! Ready to learn something new today!
John: Great! Because we’ve got some pretty interesting news coming out of one of the biggest names in crypto – Coinbase. They’ve just announced a couple of new things for their customers in the US, and we’re going to unpack it all for you.
So, What’s Cooking at Coinbase?
John: Alright, so Coinbase, which many of you might know as a popular place to buy, sell, and store cryptocurrencies like Bitcoin, recently held a big event. It was called their “State of Crypto Summit” and it happened on June 12th.
John: During this summit, they pulled back the curtain on two major new services they’re planning to launch for their users in the United States. This is quite exciting because new services, especially from a big company like Coinbase, can often make things easier or open up new possibilities for people interested in crypto.
First Up: Fancy Trading with “Perpetual Futures”
John: One of the headline-grabbers is that Coinbase is getting ready to offer something called “perpetual futures contracts” to its regular customers in the US. Max Branzburg, who’s the Head of Consumer and Business Products at Coinbase, shared this news.
Lila: Whoa, John, pump the brakes! “Perpetual futures contracts”? That sounds like something straight out of a Wall Street movie! And I saw in the notes that these are “CFTC-cleared.” What on earth does all that mean for someone like me who’s just starting to learn about crypto?
John: Haha, excellent questions, Lila! And you’re right, those terms can sound a bit intimidating. But let’s break them down, nice and easy.
- John: First, let’s talk about “Futures Contracts.” Imagine you’re a farmer growing corn. You’re worried the price of corn might drop by the time you harvest it. So, you make an agreement with a buyer today to sell your corn at a set price in, say, three months. That agreement is a bit like a ‘futures contract.’ It’s a deal to buy or sell something (it could be corn, oil, gold, or in our case, cryptocurrencies like Bitcoin) at a predetermined price on a specific date in the future. Traders use these to speculate on price movements or to protect themselves from price swings.
- John: Now, what makes them “Perpetual”? The ‘perpetual’ part is key here. Most futures contracts have an expiry date – a day when the deal has to be settled, and the contract ends. ‘Perpetual’ means these particular futures contracts don’t have a fixed end date. You can hold onto them for as long as you want; they kind of go on forever, or ‘perpetually.’
Think of it this way: A regular futures contract is like buying a movie ticket for a specific showtime on a specific day. Once that show is over, your ticket isn’t valid anymore. A perpetual futures contract is more like having a subscription to a streaming service – you can keep watching (or in this case, holding the contract) for as long as you meet certain conditions (which in the financial world, involve mechanisms to keep the contract’s price closely tracking the actual asset’s price, like Bitcoin’s current market price).
So, with these perpetual futures, traders can make bets on whether they think the price of a cryptocurrency will go up or down, without the pressure of an approaching expiration date. - John: And “CFTC-cleared”? This is a really important part. ‘CFTC’ stands for the Commodity Futures Trading Commission. This is a United States government agency. Their job is to regulate markets for these kinds of financial products, especially derivatives like futures and options.
When Coinbase says these perpetual futures will be ‘CFTC-cleared,’ it means they are operating under the oversight of and according to the rules set by this official body. The ‘cleared’ aspect often means that the trades go through a central entity called a clearinghouse. This clearinghouse acts as a middleman, guaranteeing that the trade will be honored, which helps reduce risk for both the buyer and the seller.
Having CFTC oversight is a big deal because it adds a layer of legitimacy and regulatory supervision to these crypto products. For many people, knowing that a government agency is overseeing these offerings can provide a bit more confidence and security.
Lila: Okay, that makes a bit more sense! So, perpetual futures are like a long-term, ongoing bet on crypto prices, and the CFTC is like a referee making sure Coinbase is following the official rules for these kinds of trades?
John: You’ve got it, Lila! That’s a great way to put it. It’s definitely a more advanced way of interacting with crypto prices, usually for more experienced traders, but having it regulated by an agency like the CFTC is a key step towards making such products more mainstream and trusted.
Next Up: A Credit Card Powered by Your Bitcoin!
John: The second piece of exciting news from Coinbase is about a brand-new credit card. But this isn’t your average, everyday plastic. This one is going to be “Bitcoin-backed.”
Lila: A “Bitcoin-backed” credit card? Now that sounds interesting! Does it mean when I buy my coffee, I’m paying with tiny bits of my Bitcoin directly? Or is it more like my Bitcoin is acting as a security deposit to get the card?
John: That’s a fantastic question, Lila, and you’re spot on with your second guess! It’s much more like your Bitcoin acts as a security deposit, or what we call collateral.
- John: So, how does ‘Bitcoin-backed’ work? When a card is ‘Bitcoin-backed,’ it generally means you use the Bitcoin you hold in your Coinbase account as collateral.
- Lila: Collateral? Is that like when you go to rent some bowling shoes, and you have to leave your own shoes or your driver’s license at the counter as a guarantee you’ll bring theirs back?
- John: Exactly! That’s a perfect analogy, Lila. Collateral is something valuable you offer as a guarantee when you borrow money or, in this case, get a line of credit. If you don’t pay back what you owe, the lender (Coinbase, in this scenario) can take your collateral to cover the loss.
So, with this Coinbase card, you wouldn’t be directly spending your Bitcoin every time you make a purchase. Instead, Coinbase would look at how much Bitcoin you have stored with them. Based on the value of your Bitcoin, they might say, ‘Okay, we can give you a credit limit of X dollars on this card.’
You then use the card just like any other credit card to buy things in dollars (or your local currency). You’ll receive a monthly bill, and you’ll need to pay it off, typically in dollars. - John: Why would someone want this? The main appeal is that you can get access to spending money (through credit) without having to sell your Bitcoin.
Let’s say you own some Bitcoin, and you believe its value will increase significantly over time. You don’t want to sell it right now, because you’d miss out on those potential future gains, and selling might also mean you have to pay taxes on any profit you’ve made. But what if you need some cash for a large purchase or an unexpected expense?
Instead of selling your Bitcoin, you could use it as collateral for this credit card. You get the spending power you need for your everyday life, and you still get to hold onto your Bitcoin, hoping it appreciates.
Of course, there are important things to keep in mind. The value of Bitcoin can go up and down a lot. If the value of your Bitcoin collateral drops significantly, Coinbase might ask you to add more Bitcoin to your account or pay down some of your credit balance. And, just like any credit card, if you don’t pay your bill, they could eventually use your Bitcoin collateral to cover the outstanding debt.
Lila: Wow, so I can essentially use the value locked in my Bitcoin without actually selling the Bitcoin itself? That sounds pretty clever for people who are holding onto their crypto for the long haul! But I guess you’d have to be really careful about the Bitcoin price changing, right?
John: Absolutely, Lila. The value of cryptocurrencies can be quite volatile (that means it can change quickly and unpredictably), so that’s definitely something users would need to monitor closely if they use such a card.
Why Should We Care About These Coinbase Updates?
John: So, we’ve got these regulated futures and a Bitcoin-backed credit card. Why is this significant news? Well, it tells us a few interesting things about where the crypto world might be heading:
- Crypto Growing Up: Offering products like CFTC-cleared futures shows that major crypto companies like Coinbase are increasingly working to operate within established financial regulatory frameworks. This can help build trust and potentially attract more cautious individual investors, or even larger financial institutions, who might have been hesitant to enter less regulated markets. It’s like the crypto industry is trying to put on a suit and tie and demonstrate it can work responsibly within the traditional financial system.
- Making Crypto More Usable in Daily Life: The Bitcoin-backed credit card is all about utility – making crypto useful. For a long time, a common question about cryptocurrencies was, ‘This is interesting, but what can I actually do with it besides just holding it or trading it?’ This card offers a practical way to tap into the value of your crypto holdings for everyday spending, without the immediate need to convert it to cash by selling. It’s about building a bridge between the digital crypto world and your daily financial activities.
- More Options for Users: For Coinbase customers in the US, these new offerings simply mean more choices. Whether you’re an advanced trader looking for sophisticated tools like perpetual futures, or someone who holds crypto and wants to leverage its value for credit, these products aim to cater to different needs and preferences.
- Coinbase’s Business Strategy: For Coinbase itself, launching these products is a strategic move. It allows them to diversify their services beyond just basic buying and selling of crypto. This can help them attract a wider range of customers and find new ways to generate revenue, especially as the crypto platform landscape becomes more competitive.
Lila: So, it sounds like these moves could be good for Coinbase as a business, potentially good for certain types of users, and maybe even good for making crypto seem a bit more ‘normal’ or integrated with regular money stuff?
John: That’s a perfect summary, Lila! It really is about that ongoing journey of integration and maturation for the cryptocurrency space.
A Few Thoughts from Us
John: From my perspective, seeing a major US-based exchange like Coinbase actively work with regulators like the CFTC for its futures products is a positive sign. It signals a continued move towards greater transparency and legitimacy in the US crypto market, which I think is crucial for long-term growth and adoption. The credit card is also a clever innovation to enhance the utility of holding crypto assets. It’s definitely a space to watch how these products are received and how they evolve!
Lila: As someone still learning the ropes, those perpetual futures sound pretty advanced and a bit intimidating, to be honest! Even with your great explanation, John, I think I’d need to learn a lot more before even thinking about them. The Bitcoin-backed credit card, though, sounds a bit more understandable and I can see how it might be useful for people who are really into Bitcoin and plan to hold it for a long time. It’s cool to see companies trying to make crypto more a part of everyday life, even if I’m personally just taking baby steps in understanding it all!
This article is based on the following original source, summarized from the author’s perspective:
Coinbase to launch CFTC-cleared perpetual futures trading, Bitcoin-backed credit card for US customers