Coinbase Explored FTX Europe Acquisition in Wake of Financial Struggles: Report

In a strategic move to expand its presence in the international derivatives market, Coinbase, the prominent cryptocurrency exchange, made two distinct attempts to acquire FTX Europe. These efforts came in the wake of Coinbase’s financial struggles, which led to the company filing for bankruptcy in November 2022. While both attempts were intriguing, it has been learned that Coinbase ultimately decided not to proceed with the acquisition.

Reports from Fortune shed light on Coinbase’s endeavors, with the exchange giant showing interest in acquiring FTX’s European branch on two separate occasions: first in November 2022, immediately following its parent company’s dramatic downturn, and then once more in September 2023. A Coinbase spokesperson confirmed these reports, stating, “We’re always evaluating opportunities to strategically expand our business and meet with many teams around the world.”

Coinbase was not alone in pursuing FTX Europe, as other notable contenders reportedly included the cryptocurrency exchange Crypto.com and the crypto firm Trek Labs. The sale deadline for FTX Europe was extended to September 24. Notably, FTX had invested close to $400 million in the acquisition of its European subsidiary.

FTX Europe had been operating its derivatives business under the auspices of a Cyprus regulatory license. At the time of its parent company’s collapse, it was the sole provider of certain popular derivative products, such as perpetual futures. Derivatives are financial instruments whose value is contingent on an underlying asset, such as Bitcoin. These instruments encompass a variety of forms, including options, futures, and swaps, and are favored by investors for purposes such as hedging, leverage, and market speculation, making them a favored investment strategy among both traders and institutional investors.

For Coinbase, acquiring FTX Europe could have potentially bolstered its fee revenue, given the increasing popularity of cryptocurrency derivatives trading, even in bearish market conditions. According to Coinbase’s most recent quarterly earnings report, the exchange generated $707 million in revenue during the second quarter of 2023, with $327 million originating from spot trading. This marked a 13% decrease from the previous quarter.

In contrast, global derivatives trading volumes on centralized exchanges exhibited robust growth, surging by 13.7% in June to reach $2.13 trillion, according to data from CCData. Binance emerged as the leading venue for cryptocurrency derivatives trading that month, with trading volume surpassing $1.21 trillion, followed by the OKX exchange with $416 billion, which witnessed a significant 44.9% surge in activity. Bitcoin futures trading on the CME exchange also experienced a noteworthy spike, reaching $37.9 billion, representing a 28.6% increase for the month.

Coinbase’s expansion into the derivatives market extended beyond the international arena. In August, it secured regulatory approval to offer crypto futures investments to eligible customers in the United States. This approval paved the way for Coinbase to introduce Bitcoin and Ether futures contracts through its Commodity Futures Trading Commission-regulated derivatives exchange, FairX. According to Coinbase’s announcement at the time, the global cryptocurrency derivatives market constituted nearly 75% of the worldwide crypto trading volume and served as a “critical trader access point.”

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