Coinbase Global Inc. acquires futures exchange FairX in its biggest step yet toward expansion into crypto derivatives.
Already registered with US regulators, the company could give Coinbase the edge it needs to set up a derivatives market. Terms of the agreement were not provided.
“This is the most important stepping stone for us to help shape a derivatives market,” Brett Tejpaul, head of Coinbase Institutional, said in an interview. “We believe the listed derivatives market in the United States presents a very significant business opportunity.”
Cryptocurrency futures and options — which allow investors to hedge their bets by agreeing to buy or sell coins on a certain day at a certain price — have long been a glaring hole in Crypto’s product portfolio. Coinbase. The bulk of Coinbase’s revenue comes from spot trading fees for coins like Bitcoin, and dips during bear markets can create an urgent need for diversification. Additionally, volumes in the derivatives market are outpacing those in the spot market, reaching $2.9 trillion in December, according to CryptoCompare.
The acquisition is expected to be finalized in the first quarter.
Exchanges outside of the US such as Binance and OKEx carve out the lion’s share of the derivatives market, sometimes offering traders up to 100x leverage. But some US-based companies, including CME Group Inc. and Kraken, also provide them.
Many US exchanges stayed away from the rapidly growing market due to regulatory uncertainty. But others are beginning to develop in derivative products. FTX.US, one of Coinbase’s US competitors, also used the acquisition of parent company LedgerX LLC to gain a foothold last year.
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Coinbase has been laying the groundwork to expand into derivatives for months. In September, he applied to the National Futures Association to register as a futures commissioner – a process he is continuing. Earlier last year, it also bought Skew, which tracks derivatives.
Now, Chicago-based FairX is offering Coinbase a way to speed up the process. It is already regulated by the Commodity Futures Trading Commission. It offers margin trading, which is essential for attracting investors. And it provides its products through established brokers like TD Ameritrade and E*Trade Financial. Coinbase is likely hoping that some of these companies will eventually offer its crypto derivatives, although it has no formal agreements with them.
“We want to work with regulators to make sure everything is able to launch as soon as possible,” Tejpaul said.
Previous FairX funding rounds have been led by Hyde Park Venture Partners with participation from Battery Ventures, Limerick Hill LLC, TD Ameritrade, Virtu Financial Inc. and XTX Ventures.
About 30 employees who worked at FairX will join Coinbase.