FTX using the bear market to make strategic moves

Every crisis is also an opportunity, and FTX seems to be determined to seize it. The crypto exchange’s meteoric rise was prompted by a series of fundraisings and acquisitions, and it is now using the crypto market downturn to continue this strategy and reinforce its position.

The prodigy exchange

Launched in 2019 by Sam Bankman-Fried, then a 27-year-old MIT-graduate specialist in quantitative trading, FTX is one of the biggest and fastest success stories in the crypto space. Its main value proposition that helped it raise a stunning $1.7 billion in just two years is optimizing trading experience for all participants (the buyer, the seller, and the exchange) and offering a wide range of derivatives and margin trading features.

With a comfortable cash cushion, the Panama-based exchange did not hesitate to expand to other crypto fields, such as NFTs (FTX NFT marketplace launched last October) and gaming (developing a “crypto-as-a-service” platform for mainstream gaming studios). It also founded a $2 billion venture fund for crypto companies.

Despite being a newcomer in the crypto exchange business, FTX has gained a noticeable notoriety with the larger audience through a series of sports-related sponsorships: acquiring the naming rights to Miami Heat’s basketball stadium (now known as FTX Arena) and an e-sports team TSM, putting FTX logo on Major League Baseball’s uniforms and Mercedes-AMG Petronas F1 team, as well as signing a partnership with the International Cricket Council. 

Acquisitions

While diversification and PR are necessary, the main strategy for FTX has always been about acquisitions, which have allowed it to quickly gain both a substantial user base and necessary licenses.
Back in 2020 it spent $150 million on Blockfolio, a portfolio tracking and trading app with 6 million users and a user-friendly mobile integration. 

In 2021 FTX.US acquired a futures exchange LedgerX, some of which main virtues included US licenses. 

In the beginning of 2022 FTX moved to buy Japanese crypto exchange Liquid, as well as all its subsidiaries, including Quoine Corporation with a Singapore-registered branch. Liquid is one of the oldest and biggest crypto exchanges in the world, founded in 2014 and reaching a trading volume of over $80 million daily. However, since the last year’s hack that led to $90 million worth of funds being stolen, the company has been in a difficult situation. FTX extended a helping hand by lending $120 million in debt financing, and then announced its acquisition for an undisclosed amount.

Moving to stocks

While many traditional finance companies expand to crypto, FTX is now eyeing stocks. According to CNBC, the company reportedly approached three stock trading startups in May, while Sam Bankman-Fried bought a 7.6% stake in Robinhood, a popular (yet controversial) trading app proposing both stocks and crypto. Robinhood has not been made a proposal (yet?), but such an acquisition would make sense for both FTX and Robinhood, which registered a 18% revenue decline in Q1 2022, leading it to lay off hundreds of employees.

Never waste a good crisis

Crypto market’s downturn is a great opportunity for companies like FTX. Those who have escaped the traps of leveraged trading and failing DeFi protocols, all while keeping a healthy balance sheet, now have ample opportunities to scoop up companies in distress. 

Last week FTX announced a $250 million revolving line of credit to BlockFi, a centralized crypto lender, fragilized earlier this year by a $100 million penalty paid to the SEC. BlockFi is now in the process of closing an additional funding round, and FTX is ideally positioned to acquire a stake in it (a deal fervently opposed by one of the BlockFi’s initial investors Morgan Creek Digital, now searching for funds to outbid FTX). 

Another company FTX can make a move on is Voyager Digital, a crypto brokerage firm that on Monday issued a $670 million notice of default to Three Arrows Capital, a hedge fund that has suffered from an over-exposure to the now defunct blockchain Terra and its coin LUNA. FTX has loaned out $200 million and 15k BTC (~ $300 million) to Voyager, which would suggest that an acquisition proposal could follow. 

FTX has repeatedly stated that it is “in a very good spot in terms of capital and cash”, and that it is resolved to bail out as many companies as possible to help the crypto industry endure this bear market without any more drama. This is a noble goal, as well as a very clever one, for it would put FTX in the best position for the market recovery.

Written by D.Center