Coinbase Acquires Futures Exchange FairX
Coinbase Acquires Futures Exchange FairX

On January 12th, 2022, Coinbase announced the acquisition of FairX, a
Commodities Futures Trading Commission (CFTC) registered Designated
Contract Market (DCM) offering futures. Architect Partners served as the
financial advisor for FairX.

FairX operates a regulated futures exchange for retail investors. The
company offers 1) straightforward and retail user-friendly products 2)
discounted fees compared to a traditional futures exchange, 3) retailfocused products requiring less capital, and 4) committed market makers
enabling strong liquidity. FairX launched in June 2021 and currently offers
futures on two index products in two sizes: the Bloomberg US Large Cap
Index Futures and SuperTech Index Futures, as well as Micro Crude Oil
Since launch, FairX had an average daily volume across its products of about
9,000 contracts. Based in Chicago, FairX was founded in 2019 by Neal Brady,
CEO and co-founder of ErisX, acquired by CBOE (M&A Alert) last year,
Harsha Bhat, CTO and previous SVP/CTO of State Street’s GlobalLink trading
platforms, and Chairman Clifford Lewis. FairX raised over $27 million in three
funding rounds. Notable investors include Hyde Park Venture Partners, TD
Ameritrade, XTX Ventures, Battery Ventures, Limerick Hill, and Virtu

We are seeing a trend of crypto-native firms acquiring regulated entities to
expand their offerings of sophisticated financial products. Both retail and
institutional clients demand regulatorily compliant solutions, but current
regulation is often disjointed as crypto can be an awkward fit for existing
regulatory structures. There has been much discussion regarding a
straightforward set of rules for crypto, most likely tweaks to existing
frameworks. Buying regulated entities therefore provides regulatory
“insurance” for crypto firms while future regulations are being
implemented. Coinbase has done this in the past, via purchases of three
SEC-licensed firms. FTX’s October 2021 acquisition of LedgerX is another
example, absorbing LedgerX’s 3 CFTC licenses of DCM, Swap Execution
Facility, and Derivatives Clearing Organization. We expect this approach to
accelerate in the next twelve months as crypto-native firms continue to
integrate with traditional financial services.

There are several drivers for this acquisition. First, FairX provides Coinbase
with a crypto derivatives regulatory framework for both retail and
institutional investors in the US. FairX is a CFTC registered DCM, and will be
Coinbase’s first entity fully regulated by CFTC (Coinbase applied for an
Futures Commission Merchant license in September of 2021, but has not yet
been approved). Second, it allows simplified access to futures to their
sizable retail client base. Lastly, it furthers Coinbase’s institutional product
line. Institutions need to hedge positions and hedging Bitcoin or Ethereum
is done under the commodity framework in the US.

Crypto Public Companies Snapshot

Crypto Public Companies Snapshot

Todd White
September 8, 2023

Consistent disclosure of reliable financial information to investors and markets is one of the primary objectives of the US federal securities laws. And yet even where accounting guidelines are clear, disparate reporting among similar companies can lead to confusing results. We saw this a few weeks ago with Bakkt’s acquisition of Apex, which made economic comparisons based on GAAP numbers alone difficult.


A lack of clarity can create even greater distortion. For example, historically there has been no specific accounting rule to report crypto assets in the U.S. The common treatment adopted by many companies – including Microstrategy, Marathon Digital, and Riot Platforms – treats digital assets such as Bitcoin as indefinite-lived intangibles, booking them at historical cost subject to “impairment” losses over time when prices fall below their carrying value. Such losses run through the income statement, land reduces balance sheet value, but without associated gains if prices recover. Some may view it as simply conservative, but during an up market both reported income and asset values may appear deflated against economic reality. To many investors this would seem confusing at best.


The Financial Accounting Standards Board (FASB) voted this week to approve a new rule addressing digital assets. Released in an exposure draft In March for public comment, the new rule will apply “fair value” accounting to recognize changes in digital assets values on the income statement and carry resulting balance sheet assets closer to current market value. FASB expects to issue the formal standard before year end, with mandatory effect for 2025, with the ability to adopt the rule earlier.


The rule isn’t perfect, and the potential for distortion may remain – for example, price volatility could create noisy results for companies that intend to hold their digital assets for the long term. But on balance treating crypto as a financial asset that is marked to market seems a sensible and more easily explained than previous treatment as an intangible.