BitMEX Co-Founder Hayes Feels 'Honored' by Coinbase Support for Stock Perpetual Futures
BitMEX co-founder Arthur Hayes expressed feeling "flattered" following Coinbase's support of US stock perpetual futures, coming a full decade after BitMEX introduced perpetual swaps to the market.
BitMEX co-founder Arthur Hayes expressed that he felt "flattered" following Coinbase's backing of the Commodity Futures Trading Commission (CFTC) in an ongoing US legal battle concerning stock perpetual futures contracts.
"When we launched the perpetual swap at BitMEX in 2016, Washington's reaction was less than warm," Hayes told Cointelegraph. "Ten years later, Coinbase is in federal court defending the right to offer them on US stocks. I'm flattered. Imitation is the sincerest form of regulation."
On Monday, Coinbase alongside five additional firms filed a legal brief opposing the alliance's petition to halt the trading of perpetual futures contracts linked to individual stock securities. The following day, on Tuesday, the court accepted this filing.
The Capital Markets Alliance Association (CMAA), the party responsible for filing the lawsuit, contends that these contracts ought to be classified as security-based swaps, which are subject to more stringent limitations regarding retail trading activities.
Hayes served as CEO of BitMEX during the period when the cryptocurrency derivatives platform introduced its Bitcoin perpetual swap product, which enabled traders to establish leveraged positions on Bitcoin without dealing with a fixed expiration date. This innovative product played a crucial role in establishing perpetual swaps as a fundamental component of crypto trading markets.
SEC weighs in on stock perpetuals
According to reports, the US Securities and Exchange Commission (SEC) filed a proposed court brief on Monday, taking a stance against the alliance's petition to temporarily suspend trading in these contracts.
The regulatory agency indicated it was conducting a review of the exchanges' regulatory frameworks for listing these contracts. The filing maintained ambiguity regarding whether the SEC would ultimately set aside those rules and whether the contracts should be categorized as security futures or security-based swaps.
In a court filing submitted on Tuesday, CMAA alleged that the CFTC had greenlit the contracts without providing sufficient justification for its decision or properly addressing outstanding regulatory questions that remain unresolved.
The organization additionally pointed to approximately $375 million in reported 24-hour notional trading volume for Kalshi's stock perpetuals in the period following their launch, arguing that these products were already redirecting business away from traditional stock market venues.
Stock perpetuals' lack of expiry is at issue
Stock perpetual contracts allow traders to engage in speculation on individual share prices without actually purchasing the underlying stock securities. In contrast to traditional futures contracts, these instruments do not feature a fixed expiration date.
On Nov. 3, US District Judge Valerie Caproni rejected the group's petition for a temporary restraining order on the basis that it had not yet demonstrated the likelihood of irreparable harm. She determined that the alliance appeared likely to prevail on its argument that the CFTC had overstepped its regulatory authority.
Wojciech Kaszycki, who serves as strategy adviser to BTCS SA, suggested that the absence of a fixed expiration or delivery date might create challenges for the argument that perpetual contracts should be treated as futures.
Kaszycki told Cointelegraph that the case "sale for future delivery."
Nevertheless, he cautioned that a court decision unfavorable to the CFTC might result in trading activity migrating toward offshore exchanges and decentralized trading platforms.
"The product doesn't die; it just changes address," he said.