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.


Year-End 2023 Crypto M&A and Financing Report

Eric Risley
January 8, 2024

Download the full report above.

Crypto Mergers & Acquisitions


The 2022 hangover continued with announced transaction volume remaining muted, however, improving fundamentals over the past three months promise to reinvigorate M&A activity in 2024.


M&A activity in Q4 2023 was up modestly from the prior two quarters but remains 30% below the average pace of 2022.


Crypto is not alone, broader technology and financial services M&A have similarly suffered reduced activity levels as well.


Traditional financial services companies remained wary of crypto assets, driven by regulatory and compliance uncertainty and persistent legitimacy questions.  However, digital assets, crypto’s cousin are attracting considerable attention.


The Brokers & Exchanges subsector and supporting Investing & Trading Infrastructure subsector continue to dominate representing 39% and 31% of Q4 and full year 2023 activity, respectively.


Headline transactions of 2023 were Ripple | Metaco, Coinbase | One River, DTCC | Securrency and Deutsche Borse | FundsDLT.

Crypto Private Financings


Financing activity continued its softening trend, with both deal count and capital raised falling from 2022 levels, but a late bump in December may portend a shift in the winds.


Crypto financing activity has been in a persistent decline since Q1 2022. Overall 2023 deal count fell by 34% from 2022 with capital raised falling by 68%.  Similarly Q4 2023 posted 50% lower proceeds raised and 4% fewer deals compared to the same quarter last year. 


But a December uptick bucked the trend, driven by a slight resurgence in later state deals and deal size rose for Q4 across the board for seed, early and late stage deals.


Old Guard crypto survivors attracted the largest numbers, including eToro raising $250M as an alternative to its cancelled SPAC, and Swan Bitcoin with $165M across two rounds to support Bitcoin investing and potential lending services.  Interoperable infrastructure projects also attracted substantial support,  such as  Wormhole ($225M) and LayerZero ($120M), both focused on cross-chain communications.  And new products and/or FinTech solutions such as Doshi’s Asian NFT market ($140M), Worldcoin’s digital ID ($115M) and Taurus with $65M for enterprise grade infrastructure.  

Crypto Public Companies


Crypto stock prices had an outstanding year driven by positive changes in the crypto environment. 


The Architect Public Crypto Market Index© was up 247% over the year. In comparison, the NASDAQ 100 and S&P 500 rose 43% and 24%, respectively.


Gains were driven by positive market developments following the 2022 turbulence and subsequent sell-off. 


Public crypto company multiples leveled out at typical  NASDAQ technology growth company valuations.  The Index’s Enterprise Value/Revenue in December 2022 was 1.8x and rose to 6.1x in December 2023.  By comparison, the NASDAQ 100 Market Cap/Revenue was 4.8x in Dec. 2022, falling to 4.5x in December 2023. This multiple “reset” occurred despite 2023 index revenue growth of 11%; investors focusing instead on the improving environment.


At the sub-sector level, Crypto Investment Platforms returned an average of 165%, which was significantly lowered by Coinshares 1%.  Network Operators average return was 556%, lowered by Bitdeer and Canaan’s 15% and 19% respectively, and Crypto Influenced average return was 99%, primarily driven by MicroStrategy’s 336%.