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 M&A Snapshot

Week of August 28 – September 3

Peter B. Stoneberg
September 3, 2023

Crypto M&A activity in Q3 2023: A slowdown, but with some notable deals


The crypto M&A market has slowed down in the first two months of Q3 2023, with only 17 acquisitions announced, compared to 68 in Q3 2022 and 33 in Q2 2023. However, there were still some notable deals, including:


  • OANDA acquired CoinPass, an FCA-registered cryptocurrency exchange.


  • Securitize acquired OnRamp Invest, a digital asset management platform focused on RIAs.


  • Deutsche Börse acquired FundsDLT, a blockchain-based platform for fund distribution.


  • WonderFi acquired both Coinsquare and CoinSmart, two Canadian crypto exchanges with 1.6M users.


  • Laser Digital acquired Elysium Technologies, a post-trade solutions provider for FX and digital assets.


Reasons for the slowdown

The slowdown in the crypto M&A market can be attributed to a number of factors, including:


  • The ongoing war in Ukraine, the fear of inflation and the Federal Reserve’s interest rate hikes have created a risk-off environment, which has made investors less willing to invest in risky assets, including crypto companies


  • The high-profile failures of crypto companies like FTX, Celsius, and 3 Arrows Capital have shaken investor confidence in the industry.


  • The regulatory status of cryptocurrencies in the USA is unclear, which is creating uncertainty for businesses and investors.  The industry needs clear regulations so that businesses can operate and investors can make informed decisions.


Positive developments

Despite the slowdown, there are a number of positive developments that could drive the crypto M&A market in the coming months. These include:


  • Grayscale’s Supreme Court win against the SEC, which could pave the way for more spot Bitcoin ETFs to be approved.


  • The launch of PayPal’s stablecoin for payments, which is a major milestone to enable the adoption of crypto by mainstream consumers.


  • X, formerly Twitter, has obtained money transmitter licenses in seven U.S. states, signaling Elon Musk’s grand plan to enable blockchain-based payments to their 400 million global users.


Overall outlook

Overall, the crypto M&A market is likely to remain active in the coming months, albeit at a slower pace than in previous years. The key drivers of the market will be the continued growth of the crypto industry and the establishment of additional real-world use cases for crypto and blockchain.