FTX.US Acquires LedgerX, Venturing into US regulated Crypto Derivatives

FTX.US, a leading US-regulated cryptocurrency exchange, recently announced that it agreed to acquire LedgerX, a Commodity Futures Trading Commission (CFTC) regulated digital currency futures & options exchange for an undisclosed sum.

 

LedgerX, a C6E portfolio company, is a CFTC regulated Designated Contract Market (DCM), Swap Execution Facility (SEF), and Derivatives Clearing Organization (DCO). This transaction will consolidate LedgerX’s market position in the US crypto derivatives sector.

 

As one of the four fully-licensed exchanges in North American, LedgerX is available to both retail and institutional investors 24x7 and offers physical settlement of all contracts, block trading and algorithmic trading opportunities for institutional investors.

 

Since its launch in 2017, LedgerX has cleared over 10 million crypto options and swap contracts and pioneered the bitcoin mini contracts that enable granular trading.

 

FTX.US, the local arm of FTX International, provides services in the spot market and has expanded quickly since the exchange launched last May, and its monthly trading volume has grown to over 5 billion dollars.

 

The combined entity will leverage its resources to create products that meet the needs of both retail and institutional traders alike, and hopes to further drive innovation that is compliant and meets the rigorous standards of the US financial services industry.

 

Forming a working relationship with the US Regulators  

 

The acquisition of LedgerX is a strategic move for FTX.US diving in to the local crypto derivatives market. The two sides will devoting significant resources towards developing a strong working relationship with the US regulatory community, specifically with the CFTC.

 

Brett Harrison, President of FTX.US, commented on the news, "This acquisition is a key part of our strategy to bring regulated crypto derivatives to our US user base.

 

“We're excited to work with US regulators to ensure compliance with the existing derivatives licensing regime. We believe it is incumbent upon the industry to be proactive and to seek out working relationships with regulatory groups like the CFTC to help shape the future of our industry."

 

Zach Dexter, CEO and Co-Founder of LedgerX, commented, "US crypto derivatives is an incredibly underserved market, and it took time and resources for us to become a regulated entity under the existing frameworks.

 

“FTX.US has taken the view, which we share, that US regulators are ready and willing to partner on innovative products, and it's the responsibility of the industry as a whole to step up and work with agencies like the CFTC."

 

Opportunities in the US Retail Market

 

The customer bases between FTX.US and LedgerX share similar profiles.

 

Roughly 70% of their customers are institutional investors and 30% retail investors, and institutions such as hedge funds and specialty trading firms are the main buyers of the products.

 

It is worth noting that LedgerX has developed outstanding capabilities of serving the retail industry. The platform offers small contracts like its bitcoin mini (worth 0.01 BTC - $497) and educational video contents designed to help individual investors get started with these products.

 

FTX.US is especially positive about the prospect of the US retail derivatives market, which will be an important business segment for the combined entity in the future.

 

The deal is expected to close in October.

 

C6E Commentary

 

While crypto trading is volatile, derivatives (crypto or otherwise) are an efficient and necessary tool for healthy markets. They are much more efficient means of trading when two parties are interested in gaining exposure to a particular asset but aren't so interested in securing that asset or at least holding it immediately. We are optimistic about the prospect of the cypto derivatives market.

 

Crypto trading volume is huge in the US. As for the competitive landscape, there are already quite a few exchanges in the spot market. By contrast, the regulated crypto derivatives market is still in its early stage with great development potential, and the competition is far from intensive. For example, the leading exchange, the Chicago Mercantile Exchange (CME) currently only has $1.6 billion of open interest in bitcoin futures. We believe the merger with FTX.US will help LedgerX further consolidate its ‘first mover advantage’ in the regulated crypto derivatives market.

 

Meanwhile, through the merger with FTX.US, LedgerX will gain access to a wider user base, which will be conducive to the development of its retail business, leading to better revenue mix and expanding market share.