- Coinbase, in its effort to create cryptocurrency derivatives offerings worldwide, has explored the possibility of acquiring an exchange’s presence in Europe following the exchange’s bankruptcy in November.
- Derivatives are complex financial instruments whose value is derived from underlying assets like Bitcoin
or Ethereum, and they make up a significant portion of cryptocurrency trading volume.
- Due to regulatory limitations, derivatives trading remains uncertain in the United States, leading large U.S.-based companies like Coinbase to launch foreign exchanges to focus on Asian markets in the past year.
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Coinbase has held talks with a bid to acquire a European exchange in an effort to build crypto derivatives offerings around the world.
Coinbase Seeks to Acquire Exchange in Europe
According to documents seen by COINOTAG, Coinbase, in its endeavor to offer cryptocurrency derivatives offerings worldwide, explored the idea of acquiring FTX’s presence in Europe following the exchange’s bankruptcy in November.
While acquisition talks did not progress to an advanced stage, Coinbase’s interest in FTX Europe highlights the increasing importance of derivatives in the exchange’s global business plan, especially given the declining spot trading volumes during the bear market.
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Derivatives, which derive their value from underlying assets like Bitcoin or Ethereum, have become more popular compared to spot trading, which is based on the current price of an asset. According to crypto analytics firm Kaiko Research, derivative trading volume was six times the size of spot volume in the second quarter of 2023.
Derivatives trading in the United States remains uncertain due to regulatory constraints. Therefore, large U.S.-based firms like Coinbase have launched overseas exchanges to focus on Asian markets over the past year. In August, Coinbase obtained permission to offer cryptocurrency futures trading to its U.S. customers and plans to launch the product in the near future.
Europe, like the U.S., continues to have question marks regarding cryptocurrency derivatives as it implements its own new regulations. Until the FTX collapse in November, FTX Europe was the only firm in Europe offering a popular form of cryptocurrency derivatives called perpetual futures, thanks to a regulatory license in Cyprus. FTX acquired this unit for $376 million in late 2021.
According to financial information viewed by COINOTAG, FTX Europe continued to add tens of thousands of users until the parent company’s bankruptcy. The ability to transfer the license as a permanent part – as part of an acquisition – attracted the interest of different buyers, and FTX’s debt assets were put up for auction by the FTX bankruptcy estate.
COINOTAG previously reported that parties interested in FTX Europe included Crypto.com, a Philippines-based crypto exchange run by a former Binance executive, and FTX FDM, a Bahamian unit of FTX currently under the control of court-appointed liquidators in the country.
Messages viewed by COINOTAG suggest that Coinbase expressed interest in an acquisition possibility with a European official, shortly after the FTX bankruptcy in November 2022, and as recently as early 2023. However, according to a person familiar with the discussions, Coinbase is no longer pursuing the potential deal.
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Coinbase has previously made acquisitions in the derivatives space, having acquired the futures exchange FairX in January 2022. A spokesperson stated, “We continuously evaluate opportunities to strategically expand our business and collaborate with teams around the world.”
FTX Europe has become a focal point amid its parent company’s bankruptcy proceedings. Despite achieving healthy profits, FTX Europe became a target of the bankruptcy estate’s creditors in July, led by former Enron executive John Ray III, who sought to recover hundreds of millions of dollars from FTX Europe executives. The bankruptcy estate initially claimed that the purchase was a disastrous business decision, alleging that an effective license was purchased for $376 million but was only worth $2 million.
FTX Europe’s recent attention from major crypto firms has complicated the stance of the bankruptcy estate, which continues to accept bids. According to one source, the deadline for a proposed sale has been extended from September 17th to September 24th, indicating that an acquisition may still be possible.
A spokesperson stated, “FTX Borrowers remain committed to maximizing the value of FTX’s assets for customer recoveries,” adding, “Therefore, they continue to evaluate whether there are appropriate options for the sale of some or all of the assets of the FTX Europe business.”