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After bottom-hunting in the bear market, what's the next step for SBF's business landscape?

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Committed to developing FTX into an integrated retail trading platform covering Crypto, stocks and futures

Original title: "FTX: A Defining Dilemma"

Original author: Hide Not Slide

Original compilation: Kxp, BlockBeats

Anyone who has paid attention to this year’s market should know that this round of Crypto market trend is not optimistic.

With the continued impact of rising interest rates, inflationary pressures and a pullback in global asset prices, a The menacing recession has hit the entire Crypto market, and no digital currency or NFT has been spared. Altcoins such as Solana and Avalanche have even seen a staggering 80% annual decline, and Ethereum has also fallen by 70%. At the same time, Bitcoin, a veteran player in the Crypto market, also fell by nearly 60% at the beginning of this year.

As the Crypto wave recedes, the real situation in the Crypto market gradually becomes clear. As the saying goes, "Only when the sea is flowing, can the true qualities of a hero be revealed", we can finally know at this moment, among so many trading companies, trading platforms and well-known leaders, who is the real master, and who is just empty-handed. Even in the ever-changing Crypto market, it is absolutely rare for so many well-known brands to liquidate their positions at once. Over the past few weeks, companies such as Celsius, CoinFLEX, Three Arrows Capital, and Voyager Digital have all been restructuring debt and restricting customer withdrawals, or even going straight into bankruptcy proceedings. Every day these days, companies hit the headlines with debt troubles or mass layoffs. At least for now, Crypto's woes are far from over.

However, despite the industry-wide crisis dragging all the big Crypto companies into oblivion On the edge of the world, there is one company that still sticks to the battlefield—that is FTX, a super company based in the Bahamas, whose market value has reached tens of billions of dollars. Led by the altruistic Sam Bankman-Fried, FTX is better positioned than any other Crypto firm in this crisis. Through precise marketing, active lobbying and continuous product launch, FTX has occupied a considerable proportion of the Crypto market share, and its proportion in the total global transaction volume exceeded 10% at the beginning of this year:

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More than that, at the peak of the hype in 2021, FTX launched a large-scale financing campaign, which eventually received nearly 2 billion US dollars in funding, with a market valuation of 32 billion US dollars. In October 2021, FTX conducted its second financing and received a total of 420.69 million US dollars in funds. At that time, Bitcoin had basically reached a cyclical high, as shown in the figure below:

While other institutions and retail investors are increasing their leverage and jumping headlong into the long-term Crypto trading, FTX is already using hype to strengthen its balance sheet-this is obviously unmatched by most Crypto companies of.

Did SBF see the coming Crypto Winter? Could his team have predicted that rising interest rates would lead to a cascade of liquidity squeezes across the industry? Did FTX complete the sell-off at a high price through multiple financings? We may never know the answers to these questions. But anyway, looking back, SBF's ability to raise so much cash in 2021 is a testament to his talent, while ensuring FTX's growth for many years to come.

Crypto Market

Few companies can time the market like FTX. In the bear market environment, the large amount of funds held by FTX allows it to complete strategic investment at a very suitable price, and also consolidates its status as the world's top Crypto company. According to SBF, the trading platform plans to spend $2 billion to $3 billion in M&A and other types of investments in the coming quarters.

However, opportunities always coexist with challenges, and new problems are constantly emerging. FTX must now consider how they invest and how to take advantage of this Crypto bear market. I believe FTX's answer to this question will determine its performance in the next 3-5 years, if not longer.

Although this question has not been fully answered, judging from the current situation, we basically It has been possible to judge the next move of FTX and the dilemma they are facing now.

On the one hand, FTX still wants to accomplish its long-term goal of developing its presence in the global Crypto market influence, acquire new customer groups (mainly retail investors), and design new Crypto trading products. In February, FTX announced the acquisition of Liquid Group, an Asian crypto exchange with operations in Japan, Singapore and Vietnam, and an annual trading volume of approximately $60 billion. A few months later, it also acquired Bitvo, one of the largest crypto exchanges in Canada, and obtained a license from Cypriot regulators to gradually enter the European market.

This series of transactions has expanded FTX's market territory and won more Global Regulatory Seats. With the efforts of SBF and its team, more retail investors and institutions began to invest in the Crypto ecosystem, and since it is related to their core vision, I think the risk of these investments is often low and controllable.

Not only that, when some Crypto companies encounter funding problems, FTX will also play a bad role The role of asset investor and lender of last resort. BlockFi is a large crypto lender with about $15 billion in assets as of 2021. However, after its major client Three Arrows Capital defaulted on its debt, BlockFi experienced a shortage of funds, which inevitably aroused many doubts from the outside world. Against this backdrop, FTX announced a $250 million revolving credit facility to the company and later announced that it had purchased options on BlockFi for $240 million. Similarly, FTX has provided a corresponding line of credit to Voyager, a trading platform facing financial difficulties.

However, I don't quite understand FTX's approach. In my opinion, FTX could have taken advantage of this bear market to make a fortune, such as investing in key companies or conducting reasonable mergers and acquisitions, so as to achieve the same results as the Citadel hedge fund 20 years ago. Moreover, neither lending out funds to struggling businesses nor purchasing options to acquire companies will do much to advance FTX's long-term strategy. So what I'm confused about is why FTX didn't just buy BlockFi at a low price, but spent more money to observe the company's future performance.

In my opinion, FTX's adoption of option strategy instead of acquisition strategy is actually a short-term benefit for Crypto A response to uncertainty, so they don't have to commit huge sums of money until the market stabilizes. Still, doubling down on a troubled Crypto company, even at such a low price, poses significant risk for FTX, making the investment dilemma difficult to overcome.

Traditional Financial Market

In today's market, even with a sizeable cash position, dealing with Crypto M&A alone is already quite difficult. However, FTX today not only handles Crypto transactions, but also maintains a close relationship with the traditional investment market.

FTX’s path to TradFi begins with acquisition of derivatives clearing house for undisclosed sum in late 2021 LedgerX, which later launched FTX Stocks, acquired brokerage services provider Embed Financial, and acquired the U.S. compliant securities trading platform in early 2022 IEX made a strategic investment of about $100 million. Since then, FTX has been committed to developing into an integrated retail trading platform covering Crypto, stocks and futures, while preparing for digital assets to become securities in the United States.

For months, there have been rumors that FTX has been considering the acquisition of Robinhood, and Once the acquisition is successful, FTX will successfully enter the TradFi retail field. At that time, competitors in the traditional financial market, retail investors, and regulators will have to pay close attention to FTX's progress. And now, Robinhood's YTD has fallen by more than 50%, which means that its acquisition price will be lower.

Nevertheless, I still think that the possibility of FTX cooperating with Robinhood is almost zero, mainly because Here are a few things: first, given Robinhood's ~$8 billion price tag, the deal would significantly impact FTX's balance sheet, more than double the amount of money FTX spent on the acquisition; second, FTX once launched its retail brokerage service Publicly stating that it will no longer accept payments for order flow has been controversial to some, and Robinhood primarily uses this form of payment. I'd be quite surprised if FTX changed their minds on order flow feedback for options clients just a few months later with the Robinhood acquisition.

However, the biggest obstacle to the merger of FTX and Robinhood actually comes from SBF’s recent purchase of 8% of Robinhood shares. If FTX did acquire Robinhood in the near future, SBF would certainly face accusations of insider trading, so I don't think he or his team would be willing to take such a risk. Did SBF know when he bought the stock that his company would soon be acquiring Robinhood? Did his stock holdings influence FTX's decision? Will regulators charge him in court? For a long time, SBF has a good reputation in the Crypto field and has a lot of positive news, so I don't think he will put his good image at risk to acquire Robinhood.

Conclusion

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Looking back, FTX has been successful in the Crypto field, and there is a lot of money in the bank for cheap acquisitions, but it is also facing a lot of dilemmas. For all trading platforms, the importance of mergers and acquisitions is increasing day by day-successful mergers and acquisitions can make a trading platform famous overnight and bring returns to its shareholders for decades; Trading platforms can quickly stagnate and fall behind. And for FTX, what will happen after they spend all their money investing?

If I were in FTX's shoes, I would definitely look for a Investment projects - maintain existing business while diversifying. One of the ways to do this is to acquire retail investors in adjacent asset classes and increase Crypto's market share among these users (the Robinhood transaction is the embodiment of this strategy); another way is to disrupt Crypto Invest in areas of sexual effect (such as gaming or the music industry). FTX could buy a TradFi market maker and combine its business with that of Alameda. At the same time, it can also tap into the blockchain-based carbon trading market. In general, the future of FTX has infinite possibilities and a bright future.

Among all possible transactions, OTC Markets Group is definitely a big deal. It's a trading center with a market capitalization of about $650 million that includes nearly 12,000 OTC securities.

OTCM will help FTX step out of the Crypto field and achieve diversified development: OTCM collects and distributes Earn money with quotes and pricing information for thousands of securities that are not listed on primary trading platforms. Brokerage firms that buy and sell these securities need to purchase OTCM's data in the form of recurring subscription fees, which guarantees OTCM's income to a certain extent, and it is also less susceptible to Crypto price fluctuations. With OTCM, FTX can improve its standing with TradFi brokers and regulators while growing its market data business.

At the same time, OTCM will also support FTX's existing business: FTX can pass many interesting The way to use OTCM to accelerate the popularization of Crypto. Most securities traded on OTCM face liquidity issues as the vast majority of OTC stocks do not show daily trading activity. If FTX and other trading platforms want to start experimenting with tokenized stocks or other security types, OTC penny stocks and foreign ADR stocks will be good choices. In addition, the surge in penny stock trading during the new crown period is also a favorable factor for FTX-OTCM can take this opportunity to help FTX attract a large number of retail investors at low prices.

OTC Markets Group has an enterprise valuation of just $600 million, quite affordable for FTX , also fit their budget. FTX can acquire OTCM at a reasonable price and still have a lot of money left over for other investments. The price paid by FTX doesn’t seem exorbitant at the moment, considering the exchange’s roughly $30 million in annual revenue.

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No matter what their final decision is, I hope that FTX will finally overcome the obstacles and outline their investment blueprint according to the new market structure. I believe that SBF and his team are still exploring all possible ideas.