Bitcoin Exchange Coinsetter Launches Margin Trading, and Shorting

Coinsetter customers can now trade the bitcoin spot price at up to 5 times leverage. Users only need 20 percent collateral for their trades, and the funds can be deposited into accounts entirely in bitcoin, although fiat deposits are also acceptable.

Besides Coinsetter’s headquarters and exchange in the USA, the company also operates an exchange in Canada. After buying the failing Canadian exchange Carvitex, Coinsetter is currently the country’s most liquid bitcoin trading platform.

An unusual feature of the new product is that margined positions do not accrue interest. Leveraging is, in essence, borrowing funds to trade with. This feature almost always comes with a cost.

“Traders globally can now maximize their ability to capture bitcoin trading opportunities.”
— – Jaron Lukasiewicz, Coinsetter CEO

The New York-based firm has provided exchange services since 2012, targeting financial institutions and businesses. According to Lukasiewicz, the product has already been very successful among business customers, “Coinsetter is now offering all clients access to up to $25,000 in interest-free margin at up to 5:1 leverage.”

While other bitcoin exchanges have offered leveraged trades, including up to 50x, Coinsetter is the first American and Canadian bitcoin exchange to offer leveraged of any kind.

The news follows the recent signing into law of New Yorks infamous BitLicense. While unpopular among the bitcoin business community, including with Coinsetter’s own CEO, the regulation provides extra guidance, which could have contributed to the exchange offering the product to retail clients.

Coinsetter is entering a market dominated by Coinbase. The company recently launched a much-hyped exchange, which was met with some disappointment by traders as it lacked leveraged trading and shorting. Short selling, or shorting, involves borrowing an underlying asset, such as bitcoin, to sell now and buy back later when prices are lower, profiting on a price decline.

Combining margin trading with either a buy or sell trade provides traders a way to profit from bitcoin’s notorious volatility. Members of the bitcoin trading community, including the Whale Talk podcast, said that the Coinbase exchange had nothing to offer them, or other traders like them, and that exchanges with leverage were more attractive for serious traders.

The announcement received a mixed response on social media. Questions were asked about the source of the funds for the service, and the potential implementation of legacy business practices. Coinsetter’s head of business development Josiah Hernandez, responded that leveraged trades were backed by the startup’s capital and assets. The startup has raised $3.1 million since its founding in 2012.  He added, “I don’t want to speak for anyone else, but I think it’s safe to say most people involved in bitcoin before 2014 (we were founded in 2012) are trying to stay as far away from fractional reserve practices as possible, for fundamental reasons.”

Coinsetter is not just the first American exchange, but also the first regulated exchange offering leveraged trading. The company is under the jurisdiction of the BitLicense and has to comply with its various requirements, unlike many highly leveraged exchanges which remain in a legal grey area.

The exchange is also secured through a number of technology and security providers. Coinsetter uses Xapo’s bitcoin vaults, for storing private keys to bitcoin addresses, which are distributed all over the globe. The exchange’s security is provided by the specialized bitcoin security provider SecuriCoin.