US Bitcoin Exchange Founded By Billionaire Sam Bankman-Fried Goes Into Derivatives

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FTX.US, the US subsidiary of billionaire Sam Bankman-Frieds, the global cryptocurrency exchange FTX International, is betting it can leverage a playbook similar to its parent company and compete successfully in the US market always crowded. Specifically, it will start offering crypto derivatives to clients.

Announced today, the one-year exchange has agreed to acquire the parent company of LedgerX LLC, a crypto derivatives exchange regulated by the Commodity and Futures Trading Association (CFTC), for an undisclosed amount. Derivatives are financial instruments, such as forward contracts, whose price is based on the value of an underlying asset. LedgerX currently offers bitcoin and ether futures, options, and swaps.

If the deal goes through, which could happen as early as October, FTX.US will be able to offer US customers a product line separate from industry heavyweights such as Coinbase, Kraken or Gemini.

We want to plant our flag in something that is unique to us, says Brett Harrison, CEO of FTX.US. Getting into the derivatives market is such a natural extension … FTX International has been running an exchange for two years with a monthly volume of $ 500 billion in derivatives without seeing any serious liquidations or having almost no downtime. We have the impression that it is clearly in our wheelhouse.

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It is fortunate that FTX.US can build on this playbook, as it is still looking to make a major impact in the still competitive and crypto-crowded US spot market. The exchange is growing rapidly. Harrison said that in January 2021 it averaged $ 1 million in cash volume per day, but in the past 24 hours that number has grown to over $ 350 million, according to CoinGecko. Still, this is a small fraction of the daily volume seen by Coinbase ($ 4.6 billion), Kraken ($ 1.2 billion) or Binance.US ($ 1 billion). Binance.US is the U.S. franchise of Binance.com, the world’s largest cryptocurrency exchange. These figures also do not take into account the rapid growth in the volume of crypto transactions observed by PayPal, Square and Robinhood in recent months.

The regulated derivatives market in the United States is much less crowded. The main player is the Chicago Mercantile Exchange (CME), which currently holds $ 1.63 billion in open interest (unsettled contracts) in bitcoin futures contracts. It also offers ether futures and bitcoin options. However, if we remove the US geographic barrier, the market becomes much denser and more competitive. FTX International is the third largest derivatives exchange in the world with $ 2.3 billion, but it is still far behind Binance ($ 4.15 billion). LedgerX does not make the top 10. CME was briefly the largest in the world in terms of open interest last winter, but has since fallen to number five.

BTC Futures Open Interest Exchange ($ bn)

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So even in the less competitive US derivatives space, FTX.US will have some catching up to do. The question then becomes who will trade, which is important as some crypto derivatives have been scapegoats in the industry to accentuate market movements and cause rapid price drops.

Harrison says the client bases between FTX.US and LedgerX share similar profiles (70% institutional, 30% retail), suggesting that institutions such as hedge funds and proprietary trading companies will be the ones that will primarily buy. these products. However, LedgerX is specifically targeting the retail industry with some of its offerings, such as small contracts like its bitcoin mini (worth 0.01 BTC – $ 469) and educational videos designed to help investors. individuals to get started with these products.

Asked about the value and necessity of such products given the already volatile nature of crypto, Harrison pointed out that contrary to some negative opinions, derivatives (crypto or otherwise) are an effective and necessary tool for healthy markets. These are a much more effective means of negotiation when both of your parties wish to have financial exposure to a particular asset but are not so much interested in necessarily owning that asset or at least owning that asset immediately. He also noted that this is especially valuable in crypto, where many people are still concerned about individually securing these assets. This sentiment was also shared by Sam Bankman-Fried in a recent interview with Forbes.

Harrison also explained that while the company is considering merging the two product offerings, it will be conscientious about the specific customers who may trade in those products. He wants to convey a certain seriousness with the platform and not promote a gamified experience. It is important to make it clear from the start that this is a trading platform … it is not a game to risk everything with. And that’s not our goal. We want people to trade in a safe and responsible manner.

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