Coinbase (NASDAQ:COIN), the U.S. cryptocurrency behemoth, has officially withdrawn from its plans to acquire FTX Europe, according to a recent report by Fortune on Monday. Initially, Coinbase had aimed to extend its reach into the European derivatives market via this acquisition. The decision was revised after considering the current regulatory challenges plaguing the markets.
FTX Europe's appeal primarily lies in its "highly profitable" derivatives business, operating under a Cyprus regulatory license. As the only firm licensed to offer perpetual futures in Europe, FTX Europe accounts for a significant portion of trading volumes. It's worth noting that derivatives constitute nearly 75% of the global crypto trading volume, which reached $2.13 trillion in June, up 13.7% from the previous month.
FTX's European branch had been operating profitably before its parent company declared bankruptcy in the fall of 2022, attracting several exchanges eager to expand their derivatives offerings, including Crypto.com and Trek Labs.
Coinbase's latest quarterly report revealed $707 million in revenue for Q2 2023. Of that, $327 million came from spot trading, marking a 13% decline from the previous quarter. The acquisition of FTX Europe would have been a strategic move to counter this declining revenue. Last August, Coinbase also received regulatory approval in the U.S. to offer Bitcoin and Ether futures via its Commodity Futures Trading Commission-regulated exchange, FairX.
However, increasing regulatory scrutiny on crypto exchanges has led to Coinbase's withdrawal from the acquisition talks. Regulatory challenges have been a persistent concern for the firm as it seeks to expand its global presence.
Despite abandoning its plans to acquire FTX Europe, Coinbase remains open to other strategic acquisitions and partnerships. Meanwhile, the deadline for the sale of FTX Europe has been extended to September 24, providing other interested parties a brief window to finalize the deal. FTX is also expected to sell its assets as it owes over $9 billion to its debtors, who recently received court permission to liquidate assets.
Coinbase's interest in FTX Europe was primarily due to the profitability of its derivatives business and its growing customer base. This shift is particularly notable given the decline in spot trading volumes amidst the bear market. Recent data indicates that the trading volume for crypto financial instruments tied to popular cryptocurrencies like Bitcoin and Ethereum was six times greater than the volume of spot trades.
Interestingly, this move comes after Coinbase obtained regulatory approval to introduce federally regulated cryptocurrency futures trading to eligible customers in the United States. This regulatory approval is pivotal, as it enables Coinbase to grant U.S.-based investors access to the cryptocurrency derivatives market, an area that was previously inaccessible to them.
Elsewhere, Coinbase has reaffirmed its commitment to expanding its presence in regions with well-defined cryptocurrency regulations, including Europe. The company noted in a recent blog post that while the rest of the world is making strides in crypto-friendly regulation, the U.S. appears to be focusing on enforcing existing rules and introducing new regulations through legal proceedings.
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