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

Glenn Gottlieb
October 13, 2023

News on Macro Economic Data


Overall the markets remain cautious, even though Q4 historically provides positive returns.  Global instability hasn’t significantly affected the market yet, as there is an argument the broader market is already oversold with 1,000 new yearly lows hit this week alone.   Inflation remains elevated with both the PPI and CPI numbers coming in hotter than expected (0.5% MoM and 0.4% MoM respectively).  With higher long rates, consumer debt skyrocketing, concern over higher energy costs, and inflation stabilized to some degree, multiple Fed governors have hinted at an extended pause.     


On a positive note, JPM, Citi, and Wells Fargo announced earnings that were better than expected, and more importantly showed that credit quality was also better than expected.   Credit quality is a key metric to watch as the full effects of the interest rate increases have still yet to be felt, consumer credit card debt has reached over $1T for the first time, and corporate bankruptcies continue to rise.


Crypto Public Company Activity


The Architect Partners’ Crypto Public Company Index was down by 6.3% this week due to a number of issues.


  • Trading Volume:  there continues to be a significant drop-off in crypto trading, reducing revenue for exchanges, miners, and other ecosystem participants
  • Macroeconomic Conditions:   Inflation and heightened yields on risk-free assets, especially as the Fed continues its “higher for longer” stance, have impacted all markets, including the notoriously volatile crypto market
  • Sentiment:   Overall negative to neutral market sentiment combined with continued regulatory concerns


Watch Architect Partners’ Elliot Chun interviewed on Nasdaq Trade Talks