Money Management

Coinbase is launching a new Bermuda-based international futures exchange. Find out how this sits with its campaign for clearer crypto regulation in the U.S. 

Coinbase is going global. The popular exchange will launch a new international crypto derivatives exchange for non-U.S. investors. Coinbase is one of the few crypto companies to be listed on the U.S. stock exchange, and the move is part of a strategy to broaden its horizons internationally.

Coinbase has been outspoken in its criticism of the American crypto regulatory environment recently. Brian Armstrong, Coinbase CEO, has even hinted that the company might move elsewhere if the U.S. doesn’t give more clarity on its rules.

Coinbase and the SEC

Coinbase is one of the largest crypto exchanges based in the U.S. Armstrong says this was a deliberate decision because he believes America should be at the front of this nascent industry. However, his views may be changing. He warned in a recent op-ed for CNBC that the “U.S. risks falling behind both technologically and politically.”

This year, we’ve seen several moves by the Securities and Exchange Commission (SEC) against crypto platforms, and there’s still a lot of confusion about whether crypto comes under its jurisdiction or that of the Commodity Futures Trading Commission (CFTC). Right now, most cryptos are treated as commodities. But the SEC argues that many cryptocurrencies are in fact securities that should come under its remit. There are strict rules on how securities share information and are traded that do not apply to commodities.

Last year, the SEC stopped Coinbase from launching a lend-earn product. It also charged two former Coinbase employees with insider trading violations. Most recently, it slapped Coinbase with a Wells notice over potential securities violations. This is essentially a warning that it plans to take enforcement action against it. In a rebuttal, Coinbase insisted it, “Does not list securities or offer products to our customers that are securities.”

In addition to volatility, the relative lack of regulation is one of the big risks of investing in cryptocurrency. As we saw with the collapse of FTX, there isn’t a lot of investor protection and there’s a lack of transparency about what some of these platforms are doing with customer funds. The challenge is that the industry grew dramatically in an environment with relatively few rules. Now regulators are trying to reverse-engineer stricter controls. Unfortunately, it’s a bit like shutting the gate after the horse has bolted.

The Coinbase International Exchange

The new Coinbase International Exchange has regulatory approval from the Bermuda Monetary Authority. It will only be available to institutional investors in certain non-U.S. countries.

It will allow qualified investors to trade perpetual crypto futures, which is a type of derivative trading. Essentially, derivatives let investors speculate on the future price of a commodity — in this case, Bitcoin (BTC) and Ethereum (ETH). Unlike traditional futures contracts, perpetual futures don’t have an expiration date, meaning traders can keep their positions open for longer.

The new exchange will also offer up to five times leverage. Leverage lets investors multiply both their gains and their losses by essentially trading with borrowed funds. Leverage and derivatives trading can be extremely risky, particularly for a volatile asset class such as crypto.

In a press release, Coinbase said, “Perpetual futures accounted for nearly 75% of global crypto trading volume in 2022, creating highly-liquid markets and offering traders additional versatility in their trading strategies.”

What it means for U.S. investors

The new exchange is not available in the U.S. where crypto derivatives are tightly restricted, especially for retail investors. As such, the service will have little direct impact on U.S. investors. However, what could affect American crypto investors is Coinbase’s more international focus — especially when taken alongside Armstrong’s comments about possible relocation.

For U.S. crypto investors, the issue of regulation is key. In the absence of clear guidelines, Coinbase says this country has a “regulation by enforcement approach.” It says that the SEC is punishing the crypto industry for breaking rules that have not been clearly communicated. “Coinbase and other crypto companies are facing potential regulatory enforcement actions from the SEC, even though we have not been told how the SEC believes the law applies to our business,” it argues.

In the long term, increased regulation could strengthen the foundations of the industry and build much needed trust. But in the short term, it could lead to even more volatility and may cause crypto companies to move to other countries. This could have a knock-on effect for how digital currencies evolve in America and how investors can buy or sell cryptocurrencies. As an investor, pay attention to both industry and regulatory moves, as both could impact your portfolio.

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Financial advisor Ramit Sethi has strong feelings about whether homeownership is really the American Dream. Here’s what he had to say. 

Writer and self-proclaimed financial advisor Ramit Sethi knows his audience. And what Sethi understands is that young adults are under incredible pressure to become homeowners, whether it’s the right move for them or not. Here, we take a look at Sethi’s comments on the subject to a follower on Twitter.

Homeownership at all costs

A Sethi follower wrote, “If 90% of people don’t understand the transaction costs of owning a house, we have failed as a society.”

Sethi responded, “We have not failed. We have achieved exactly what our society was designed to do: Create a culture and systems that encourage homeownership at all costs, stigmatizes and disenfranchises minorities, the young, and the poor, and discourages critical thinking about large life decisions.”

Whew! That’s a lot to unpack, but let’s focus on what Sethi says about homeownership at all costs.

Pressure to buy

Home sales skyrocketed during the initial phase of the pandemic, fed in part by the fear that interest rates would never again be low enough to allow the average household to afford a home of their own.

Sethi’s response to his Twitter follower mentioned a culture that encourages homeownership at all costs. The truth is this: It is difficult to understand the hidden cost of homeownership until you’ve already taken out a mortgage and live in the home.

There are few shocks like those faced by new homeowners as they realize how much of their money and time is eaten up by the upkeep and maintenance of their new domicile. Beyond the financial costs of homeownership, there’s the sense of wondering what may go wrong next.

If all a person has ever wanted is to own property and spend their time and money making it their own, homeownership may be a dream come true. But if someone harbors a different vision of life, it’s okay to say no to buying a house, no matter what society tells them they should be doing at this stage in life.

Freedom in saying no

We all have things that are expected of us in life, and we all carry secret dreams and desires. Bombarding a person with the message that they must become a homeowner becomes like white noise that can make them lose focus on what they really want.

If you would rather spend your time and money traveling the world, serving a community in need, sailing the ocean, or going back to school to become a veterinarian, your dreams don’t have to be disrupted by societal pressure that tells you buying a house is the most important thing you can do.

Home sales benefit a lot of people, from real estate agents to loan officers and home sellers. But that doesn’t mean you’re responsible for making it happen. You’re only responsible for living life on your terms and following your talents and dreams.

If you decide to take a page from Sethi’s book and take control of your financial destiny, that may mean not buying a house until you’re good and ready — if that day ever comes. Along the way, a constant drumbeat of voices will tell you that homeownership is the American Dream. But as former U.S. Senator Craig L. Thomas once said, “You stuff somebody into the American Dream, and it becomes a prison.”

If the idea of homeownership gives you the heebie-jeebies, maybe pull a Nancy Reagan and “just say no.”

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Are more interest rate hikes on the way? Read on to find out. 

The Federal Reserve has been eager to bring inflation down to the 2% mark. It’s that level, the central bank feels, that’s most conducive to strong employment numbers and economic stability and growth.

In March, inflation was up 5% on an annual basis, according to that month’s Consumer Price Index. And while that’s an improvement from last year, during which inflation soared above 9% at one point, it’s still not anywhere close to 2%.

To continue combatting rampant inflation, the Fed has raised interest rates twice this year, each time by a margin of 25 basis points, or 0.25%. But is the Fed done with its 2023 rate hikes? One financial company thinks not.

Consumers should brace for higher borrowing costs

When the Fed raises interest rates, it commonly drives the cost of borrowing up for consumers on a whole. To be clear, the Fed doesn’t establish borrowing rates for products like personal loans and mortgages. Rather, it dictates what the federal funds rate looks like. That’s the rate banks charge each other for short-term borrowing.

But when the federal funds rate increases, borrowing rates tend to follow suit, making it more expensive for consumers to do everything from finance a home purchase to buy a car. And so consumers are generally hoping that rates won’t increase any more this year.

Vanguard, however, expects additional rate hikes from the Fed this year. In a recent report, Vanguard said, “We expect the Fed to raise its rate target by another 75 basis points this year…We don’t foresee rate cuts before 2024.”

Now, this doesn’t mean that the Fed will implement a 0.75% rate hike at its next meeting. Rather, it might raise interest rates by 0.25% several times during the remainder of 2023. But either way, consumers should anticipate the cost of borrowing going up even more.

It’s a good time to put off a large purchase

Because borrowing is likely to remain expensive for the remainder of 2023, it’s generally not a great time to sign a loan. And so if it’s possible to put off a large purchase for another year, doing so could mean avoiding a loan at a higher interest rate.

Of course, this option won’t exist for everyone. If you rely on a car to get to work and yours stops running, you won’t necessarily be able to put off a vehicle purchase for another six months or longer.

But let’s say you’d like to take out a personal or home equity loan to renovate your living space. If your home is perfectly functional without the improvements you have in mind, then holding off could work to your benefit.

Thankfully, inflation isn’t as high today as it was for much of 2022. But the Fed feels it still has work to do, and interest rate hikes are likely to continue until inflation gets closer to or reaches the 2% mark. That’s something consumers should be aware of as they explore their borrowing options.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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