Crypto.com has achieved a significant milestone by becoming the first U.S.-based cryptocurrency exchange to secure the complete suite of licenses from the U.S. Commodity Futures Trading Commission (CFTC). This development allows Crypto.com to offer margined derivatives products directly to its American users without depending on the Chicago Mercantile Exchange (CME), marking a pivotal shift in the landscape of crypto trading in the United States.
The recent amendment to Crypto.com’s designated contract market (DCM) license, disclosed on September 30, signifies that the exchange is fully authorized to provide a comprehensive suite of derivatives services to its users. As part of this regulatory framework, the CFTC oversees derivatives markets via several licenses designed to ensure distinct functionalities and compliance.
The CFTC’s licensing categories include Futures Commission Merchants (FCMs), which serve as brokers for futures markets; DCMs, which are licensed exchanges for trading futures and options; and Derivatives Clearing Organizations (DCOs), which act as clearinghouses, managing trades and mitigating risks. This three-pronged framework ensures that roles are clearly defined and conflicts of interest are minimized.
Crypto.com’s journey toward acquiring this full suite of licenses has been ongoing for several years. The company initially secured DCM and DCO licenses in March 2022 upon acquiring the North American Derivatives Exchange (Nadex). At that time, these licenses allowed only for 100% collateralized positions, preventing any leverage or credit exposure. With the recent amendment to its DCM license, Crypto.com can now offer margined futures, distinguishing itself as the first retail-focused exchange in the country to do so.
The expansion of leveraged trading options comes in light of a history where tightenings in regulations led many exchanges to withdraw derivative products from the U.S. market. In the mid-2010s, increased scrutiny from the CFTC resulted in most unregistered exchanges halting the offering of margin contracts. The CME Group dominated the regulated margin market for cryptocurrencies like Bitcoin and Ether, but these products typically catered to institutional players. Only in 2021 did micro-contracts emerge as an accessible option for retail traders.
The regulatory environment appears to be shifting, particularly since the advent of the Trump administration, which has been markedly more favorable towards cryptocurrency exchanges. In contrast to the previous administration, which imposed strict regulations resulting in the exodus of some major exchanges from the U.S. market, the current regulatory landscape is beginning to open up. Crypto.com’s recent success reflects this change, allowing for a framework where exchanges are more likely to be properly licensed rather than face exclusion from regulated activities.
CEO Kris Marszalek expressed his gratitude towards the CFTC and its Acting Chairman, noting their efforts to advance the pro-crypto agenda. With this new license, Crypto.com is poised to design and introduce its own leveraged contracts and will soon announce a fresh suite of margined products tailored for U.S. traders. Unlike Coinbase, which operates without its own clearinghouse, Crypto.com will manage the entire trade-clearing and margin process internally.
As the landscape for crypto trading continues to evolve, Crypto.com’s advancements may signify a broader trend towards regulatory acceptance, potentially heralding a new era for American cryptocurrency exchanges. Chief Legal Officer Nick Lundgren referred to this moment as historic, underscoring the company’s commitment to creating a robust exchange capable of offering a diverse array of products. Global Head of Capital Markets, Travis McGhee, reiterated the excitement surrounding the imminent launch of margined derivatives, indicating a substantial leap forward in the capabilities of U.S.-based crypto platforms.
