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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.

Insights

Week of January 22 – January 28

Arjun Mehra
January 31, 2024
DOWNLOAD FULL REPORT

40 Crypto Private Financings Raised ~$180M 

Rolling 3-Month-Average: $207M

Rolling 52-Week Average: $183M

 

This week, there were 40 private financings, the most in over 2 years. Although 11 of the financings did not have disclosed financing values, this is a positive sign for the private financing market and remains a part of a trend upward, following weeks with 22, 28, and 34 deals.

 

In addition, meaningful financings, with reputable investors, are happening. Last week, HashKey raised $100M at a $1.3B valuation and FlowDesk raised $50M from strong names such as Cathay Innovation, EuraZeo, Speedinvest, and BPI. 

 

And this week Switzerland-based, Sygnum Bank raised $40M at a $900M valuation from an Italian asset manager with $100B in AUM, Azimut Holding (Read our full analysis on the transaction here). 

 

Although not a perfect capital raise – allegedly a long time in the market spent raising & not a significant uptick in valuation from the previous round – this does build upon the trend we are seeing in January 2024: real deals getting done from real investors at significant valuations. 

 

On another note, Eric Risley, Managing Partner of Architect Partners, published a report using data to look at the analog between the early development of the Internet and Crypto. Read Family Ties: The Internet and Crypto.

 

Events

Architect Partners will be at the Satoshi Roundtable (1/31-2/7), ETH Denver (2/29 – 3/3), and Digital Asset Summit (3/18 – 3/20). Please contact elliot@architectpartners.com or arjun@architectpartners.com if you would like to meet.