Coinbase nears deal to buy FTX Europe, lured by its derivatives business
Coinbase is reportedly in the final stages of negotiations to acquire FTX Europe, signaling its intent to expand in regions with well-defined cryptocurrency regulations.
This potential acquisition follows the bankruptcy of FTX’s parent company in the United States in 2022. The ongoing negotiations have progressed to their final stages and were further reignited in early September.
A US bankruptcy court has given FTX’s liquidators the greenlight to kickstart bids to sell four functioning subsidiaries — including its Japanese and European units. The businesses include custody platform and broker-dealer Embed, crypto derivatives exchange and clearing house LedgerX, FTX Japan and FTX Europe, which have reportedly attracted as many as 117 expressions of interest.
While the bankruptcy case could take years, a committee representing FTX’s creditors has prioritized the sale of certain entities. They argued that all these businesses have solvent balance sheets, independent management and valuable franchises, but they are at “risk of losing value if not sold quickly.”
Coinbase’s interest in FTX Europe is primarily due to the profitability of its derivatives business and its increasing customer base. This shift is particularly notable given the decline in spot trading volumes amidst the bear market. Recent data indicates that the trading volume for crypto financial instruments tied to popular cryptocurrencies like Bitcoin and Ethereum was six times greater than the volume of spot trades.
Interestingly, the move comes after Coinbase obtained regulatory approval to introduce federally regulated cryptocurrency futures trading to eligible customers in the United States. With the launch of these new futures offerings, America’s largest crypto platform aims to further expand its institutional services and provide additional investment options for its clientele.
This regulatory approval is pivotal, as it enables Coinbase to grant U.S.-based investors access to the cryptocurrency derivatives market, an area that was previously inaccessible to them. Crypto derivatives constitute over 75% of global crypto trades, but due to their intricate nature and high-risk levels, they were largely off-limits for American investors. These financial tools allow traders to speculate on price movements without owning the actual underlying asset, such as a cryptocurrency like Bitcoin.
Elsewhere, Coinbase has reaffirmed its commitment to expanding its presence in regions with well-defined cryptocurrency regulations, including Europe. The company noted in a recent blog post that while the rest of the world is making strides in crypto-friendly regulation, the U.S. appears to be focusing on enforcing existing rules and introducing new regulations through legal proceedings.