Coinbase Buys Futures Exchange FairX In Crypto Derivatives Push

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Coinbase, America’s biggest crypto exchange, is expanding its turf again through a strategic acquisition. The company is buying FairX, a futures exchange that’s licensed and regulated by the Commodity Futures Trading Commission (CFTC). Coinbase said the purchase is a step towards offering derivatives trading to American customers.

FairX lets US customers trade futures based on stocks and specific commodities. To the unaware, futures are a type of derivative contract that lets traders speculate on the future price action of an asset. They’re used to speculate on everything from stocks and bonds to commodities like oil and gold.

The US strictly regulates futures trading, including those based on unregulated assets like cryptocurrency. Several crypto exchanges have been handed hefty fines for letting American customers trade futures without approval from the CFTC, e.g., BitMEX’s $100mn fine. Hence, it makes sense that Coinbase is buying a futures exchange registered with the CFTC to jumpstart its crypto derivatives product. It’s easier to buy an already-licensed exchange than go through the hassle of getting a new license from the CFTC.

  • In a blog post, Coinbase said it plans to offer regulated crypto derivatives trading to American customers, initially through FairX’s existing partner network and over time on Coinbase itself. However, it didn’t state a definite timeline on when it wants to do that.

 

  • Notably, FairX is pretty new to the futures game. It launched its futures exchange in May 2021, following regulatory approvals in late 2020. That Coinbase is buying FairX’s futures exchange in less than a year of existence shows urgency. Who knows, Coinbase’s American customers may get crypto derivatives trading this year or the next, thanks to the infrastructure already set in place by FairX.

 

  • Thanks to the crypto boom in 2021, Coinbase is flush with cash to make whichever acquisition it wants. The company pulled in $2.8bn in pure profits in the nine months ended September 2021, compared to just $146mn in the same period of 2020.

FairX has raised $28mn from investors, including Virtu Financial, a publicly-traded market-maker, and TD Ameritrade, a brokerage giant. Battery Ventures, a blue-chip VC firm, is another FairX investor (and Coinbase shareholder). The price Coinbase paid for FairX wasn’t disclosed.

 

  • If all goes as planned, the acquisition will close in this year’s first quarter.

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