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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
Futures.
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
Financial.

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 Quarterly Snapshots

Q1 2023 Crypto M&A and Financings

AUTHOR
April 1, 2023
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Crypto Mergers & Acquisitions

 

Q1 2023 is the most active Crypto M&A quarter boasting 54 total transactions, a record high for a single quarter

 

Two-thirds of Crypto M&A transactions in Q1 2023 were intra-crypto transactions in which a crypto native firm acquires another crypto native firm

 

Companies developing DApps or the tools and infrastructure to build them accounted for 43% of Q1 2023 Crypto M&A activity

 

Crypto Private Financings

 

Crypto financing activity remained flat in Q1 2023 with 318 financings, but is overall trending down when compared to 530 financings in Q1 2022

 

The most active lead investors in Q1 were Andreessen Horowitz, Outlier Ventures, Blockchain Capital, DWF Labs, and Bain Capital, in that order

 

Companies developing DApps or the tools and infrastructure to build them accounted for 55% of Q1 2023 financing activity

 

Crypto Public Companies

Stock prices rose by an average of 115%
across all relevant crypto public
companies for Q1 2022, with crypto
mining gaining the most, 142%

 

Public crypto company prices continue to
be highly correlated to Bitcoin prices,
with Bitcoin gaining 71%, similar to crypto
related public companies

 

We saw two crypto banking partners
removed from our list, Signature and
Silvergate bank. These banks have been
critical supporters of the crypto
ecosystem, as some of the first banks to
accept crypto clients. Their payment
networks enabled instant deposits and
transfers at no cost, enabling efficient
trading and liquidity in the crypto space