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
November 17, 2023

News on Macro Economic Data

The economy received good news this week, as both CPI and PPI numbers came in better than expected.   CPI was up year over year by 3.2% and down 0.5% month over month.   The majority of the reduction can be attributed to the reduction in energy costs.   Core inflation (CPI less food and energy) fell to 4% year over year, and just 0.2% month over month.   In addition, housing starts surprised to the upside of 1.9% month over month instead of the expected decline.  Housing permits were also better than expected at 1.1%.


There is still caution as major retailers provided cautious guidance for Q4, and major banks are projecting a slowdown in 2024.  Data suggesting a slowdown continues to include: total inflation since January 21, 2021, is slightly above 17% while real wages have declined 4% over the same period, consumer debt defaults are rising, and the full effects of the Fed raises have yet to be felt.  


Crypto Public Company Activity


“The Future Will Be Tokenized” –   Forbes


Many believe that tokenization is the future, and this digital future will revolutionize financial markets, along with substantial positive effects in other markets.   The integration of tokenization and blockchain will lead to innovative financial solutions, marketplaces, and drive efficiency and liquidity for markets.   There are still many technical and regulatory hurdles, but innovative companies are partnering with large financial institutions to aggressively drive this future forward.  Two exciting announcements from this week include:


  • JPM and Apollo announced a POC to tokenize Apollo’s funds in collaboration with Axelar, Oasis Pro, and Provenance Blockchain.  The goal is to manage large-scale client portfolios, execute trades, and provide automated portfolio management of tokenized assets.  


  • Monetary Authority of Singapore (MAS) announced multiple financial industry partners to develop comprehensive infrastructure and capabilities to expand and scale the opportunities for tokenization and digital assets across networks and borders.  The partners have created five POCs representing the entire value chain for capital markets– listing, distribution, trading, settlement, and servicing.  MAS’ announced partners include  Citi, T Rowe Price, Fidelity, BNY Mellon, OCBC, Ant International, Franklin Templeton, JP Morgan, and Apollo. 


Recent weeks have been positive for public markets, especially given the positive economic news over the past couple of weeks.   As a result, BTC has been up 27% over the past month providing a positive influence on public crypto companies, with the Architect Partners’ index up 30% over the same period.