To expand global crypto derivatives offerings, Coinbase considered the acquisition of FTX's European entity following FTX's bankruptcy in November. The discussions did not progress to an advanced stage. However, this move highlights Coinbase's growing emphasis on derivatives.
Crypto Futures Approval: Coinbase's Strategic Move
Derivatives are complex financial instruments. These are based on the value of underlying assets such as Bitcoin and Ether. They have gained substantial prominence within the crypto industry.
Derivatives trading has been more popular than spot trading. According to data from crypto analytics firm Kaiko Research, in the second quarter of 2023, derivatives trading volumes were six times larger than spot trading volumes.
Coinbase, like other major U.S.-based firms such as Gemini, has ventured into offshore exchanges to focus on Asian markets. The regulatory restrictions in the U.S. have stalled the growth of derivatives trading. In August, Coinbase received approval to offer crypto futures to its U.S. customers. It is planned for a rollout shortly.
Europe remains a region with uncertainties surrounding crypto derivatives because of the introduction of new regulations. Until the collapse of FTX in November, FTX Europe was the sole provider of a popular form of crypto derivatives known as perpetual futures, or "perps," in the European market.
This was made possible through a crucial regulatory license obtained in Cyprus. FTXinitially acquired FTX Europe for $376 million in late 2021.
Coinbase in Talks to Buy FTX Europe (Source: Fortune) #crypto pic.twitter.com/ROIUOAO2g1
— Altcoin Daily (@AltcoinDailyio) September 23, 2023
Financial documents of FTX Europe reveal that the platform continued to attract tens of thousands of users until the bankruptcy of its parent company. The enduring value of its license could only be transferred as part of an acquisition. This drew interest from various potential buyers. Among them were Crypto.com and FTX FDM.
Coinbasehas also expressed interest in FTX Europe. An executive from Coinbase's European operations inquired about the possibility of an acquisition. Both came shortly after FTX's bankruptcy in November 2022 and September 2023. However, it has been reported that Coinbase is no longer actively pursuing this potential deal.
Coinbase's Ongoing Business Expansion Strategy
Coinbase has previously made acquisitions in the derivatives space such as the futures exchange FairX in January 2022. A Coinbase spokesperson stated, "We're always evaluating opportunities to strategically expand our business and meet with many teams around the world."
FTX Europe has become a focal point in the bankruptcy proceedings of FTX. The debtors' estate pursues legal action to recover hundreds of millions of dollars from FTX Europe executives. Despite the interest shown by major crypto firms, the estate had previously claimed that an acquisition was not feasible.
However, the recent interest from Coinbase and Trek Labs have complicated the situation. The deadline for a proposed sale has been extended to September 24. It indicates that an acquisition remains a possibility.
A spokesperson for the FTX debtors stated: "The FTX Debtors are committed to maximizing the value of FTX's assets to drive customer recoveries. As such, the FTX Debtors are continuing to evaluate whether there are viable options for the sale of some or all of the assets of the FTX Europe business. This process remains ongoing."
The evolving dynamics in the crypto derivatives space, regulatory developments, and the interest of major players like Coinbase highlight the cryptocurrency industry's growth and evolution.
Regulation and Lessons from the FTX Collapse: Insights from Dr. George Theocharides
In a recent interview with Finance Magnates, Dr. George Theocharides, the Chairman of CySEC shed light on critical developments in the cryptocurrency industry. He talked about the collapse of FTX and the SEC's actions against major players like Coinbase and Binance.
Dr. Theocharides emphasized the need for regulatory measures in the industry. He opined it has operated without comprehensive oversight for several years.
He highlighted the recent instances of crypto giants encountering difficulties. FTX is a prime example. Troubled firms in the crypto space often received bailouts. However, the collapse of FTX marked a significant departure from this trend.
TheU.S. Securities and Exchange Commission (SEC)has taken a proactive approach to bring structure and regulation to the cryptocurrency industry. Dr. Theocharides explained that the SEC's aggressive stance towards major players in the United States is part of an effort to implant regulatory oversight.
One specific case illustrating the importance of regulation is FTX EU. FTX had acquired a regulated entity in Cyprus. It secured a MiFID license in September 2022 for trading derivative products, although not for crypto trading.
FTX's crisis broke out on November 9th, 2022, Dr. Theocharides' team took immediate action. Given that FTX EU had properly segregated client funds and a strong governance structure. They promptly requested that FTX in Cyprus suspend operations, which was executed on the same day.
FTX entered Chapter 11 bankruptcy proceedings, encompassing FTX EU. The primary objective was to preserve the company's value while ensuring the safeguarding and eventual return of client funds. Handling a crypto-related bankruptcy in this manner is a complex process. It took time to establish a comprehensive system from scratch for the secure return of client assets.
This experience highlights two critical lessons. First, swift action is imperative when a financial crisis unfolds. Second, appropriate regulation can help mitigate risks associated with crypto assets. However, they may never be entirely eliminated.
These insights show us that the crypto world is going through a big change. There will be more rules to make things clearer and to protect people who invest in cryptocurrencies.
So, the crypto world is on a path to becoming more open and safer for everyone involved.
This article was written by Tareq Sikder at www.financemagnates.com.
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