Coinbase Withdraws from FTX Europe Acquisition Due to Regulatory Challenges

Coinbase, the prominent U.S. cryptocurrency exchange, has officially abandoned its plans to acquire FTX Europe, according to a report by Fortune. The initial aim of this acquisition was to expand Coinbase’s presence in the European derivatives market. However, the decision was reversed due to ongoing regulatory challenges affecting the industry.

FTX Europe holds significant appeal due to its profitable derivatives business, which operates under a regulatory license from Cyprus. As the sole entity licensed to offer perpetual futures in Europe, FTX Europe comprises a large share of trading volumes. Derivatives represent nearly 75% of global crypto trading volume, which reached $2.13 trillion in June, a 13.7% increase from the previous month.

Prior to the bankruptcy of its parent company in late 2022, FTX’s European branch was profitable and drew interest from various exchanges looking to enhance their derivatives offerings, including Crypto.com and Trek Labs.

In its latest quarterly report, Coinbase reported $707 million in revenue for the second quarter of 2023. Of that total, $327 million came from spot trading, which marked a 13% decrease from the prior quarter. Acquiring FTX Europe was considered a strategic response to this decline in revenue. Additionally, last August, Coinbase secured regulatory approval in the U.S. to offer futures for Bitcoin and Ether through its Commodity Futures Trading Commission-regulated exchange.

However, the increasing scrutiny from regulators regarding crypto exchanges has led to Coinbase’s withdrawal from the acquisition discussions. Regulatory hurdles have been a consistent issue for the company, particularly as it seeks to grow its international footprint.

Despite stepping back from the FTX Europe acquisition, Coinbase remains open to exploring other strategic partnerships and acquisitions. Meanwhile, the deadline for the sale of FTX Europe has been extended to September 24, allowing other interested parties a limited opportunity to finalize the deal. FTX is also preparing to sell its assets, having accrued over $9 billion in debt, with creditors recently gaining court approval to liquidate assets.

Coinbase’s interest in FTX Europe was driven mainly by the profitability of its derivatives sector and its expanding customer base. This decision is particularly important in light of declining spot trading volumes amid a bear market. Recent data indicates that the trading volume for crypto financial instruments linked to popular cryptocurrencies significantly outpaced spot trade volumes.

This development follows Coinbase’s recent regulatory approval to introduce federally regulated cryptocurrency futures trading for eligible customers in the United States, granting U.S. investors access to a previously unavailable market segment.

Moreover, Coinbase has emphasized its intention to broaden its presence in regions with clear cryptocurrency regulations, including Europe. The company recently highlighted that while global advancements in crypto-friendly regulations continue, the U.S. is primarily focused on enforcing current rules and introducing new regulations through legal channels.