FTX.US is the American affiliate to Sam Bankman-Fried’s global cryptocurrency trading platform FTX International. It believes it can use a similar strategy to its parent company to compete in the highly competitive U.S. market. It will offer clients crypto derivatives.
Today, the exchange announced that it has acquired LedgerX LLC, a Commodity and Futures Trading Association-regulated crypto derivatives exchange for an undisclosed amount. Derivatives can be financial instruments such as futures whose price is determined by the value of the underlying asset. LedgerX offers options, futures, and swaps for bitcoin and ether.
FTX.US could offer American clients a different product line than industry heavyweights like Kraken, Coinbase, and Gemini if the deal is closed. This could happen as soon as October.
Brett Harrison, CEO at FTX.US, stated that he wants to “plant our flag in something unique to us.” ‘Going into derivatives is such a natural extension…FTX.US has been running an exchange with $500Billion in monthly derivatives volume for two years without any serious liquidations and virtually no downtime. This seems like something that is within our reach.
It’s fortunate that FTX.US is able to draw from this playbook, as it continues to seek to make a significant impact on the highly competitive and crowded American crypto spot markets. It is expanding rapidly. According to CoinGecko, Harrison stated that the exchange averaged $1 million per day in January 2021.
However, that number has increased to more than $350 million over the past 24 hours. This is still a fraction of the daily volume that Coinbase ($4.6 Billion), Kraken ($1.2 Billion) and Binance.US ($1 Billion) sees. Binance.US, Binance.com’s American affiliate, is Binance.com’s largest cryptocurrency exchange. These numbers don’t take into account Robinhood’s rapid rise in cryptocurrency trading volume in recent months, as well as PayPal and Square’s rapid growth.
There is less competition in the U.S. market for regulated derivatives. Chicago Mercantile Exchange, (CME) is the major player. It currently has $1.63 trillion of open interest (unsettled contract) in bitcoin futures. You can also choose from ether futures or bitcoin options. The market will become more competitive and dense if the U.S. geofence is removed. FTX International, which has $2.3 billion in derivatives trading, is third in the world. Binance is fourth ($4.15 billion). LedgerX is not included in the top 10. CME was once the world’s largest open-interest provider, but has since dropped to fifth.
FTX.US, even though it is less competitive in the U.S. derivatives market, will need to catch up. It is then important to ask who will trade, as crypto derivatives products have been blamed for accelerating market movements and leading to rapid price drops.
Harrison states that FTX.US’s customer base and LedgerX’s share similar profiles (70% retail, 30% institutional), which suggests that institutions like hedge funds and proprietary trading companies will be the primary purchasers of these products. LedgerX is targeting the retail market with certain of its offerings. These include small contracts such as its bitcoin mini (worth 0.01 BTC, $469), and educational videos to help retail investors get started using these products.
Harrison answered questions about the need and value of derivatives given crypto’s volatile nature. They are a more efficient way to trade when you both want financial exposure to an asset, but not necessarily in holding it. This is particularly important in crypto where many people are still hesitant about securing these assets. This sentiment was also shared by Sam Bankman-Fried in a recent interview with Forbes.
Harrison explained that the company plans to combine the product lines of both operations in the future, but will be careful about which customers can trade these products. Harrison wants the platform to be serious and not a “gamified” experience. It is crucial to be clear that this platform is not a gambling site. That’s not our goal. We want people trading safely and responsibly.