Cryptocurrency exchange FTX is currently rumoured to be contemplating a bid for US broker Robinhood. Should it really be in the pipeline, it would fit nicely into a wider trend pundits have observed that the world of traditional finance and the crypto world are coming closer together. The line between traditional markets and crypto has the potential to become blurry and even slowly dissolve.
The rumour stems from internal discussions held at FTX, according to Bloomberg, and FTX itself has publicly said it is not currently in talks to acquire Robinhood. Having said that, FTX CEO Sam Bankman-Fried has said he is excited about Robinhood’s business prospects and the potential ways in which the two brokers would work together. While no formal takeover approach has yet been made, that does not exclude the strong possibility of behind the scenes, informal discussions.
Why are regulated markets attractive to cryptocurrency exchanges?
Crypto exchanges that seem to play a long game (i.e. trying to operate in a more transparent and compliant way) are discovering ways to step into regulated markets such as brokerage and custody. There are different strategies like building up regulated business lines from the ground up (see Gemini and their FINRA registered broker dealer entity Gemini Galactic Markets and Binance’s failed attempt to launch a regulated business in Germany, Fidelity building up its digital business via Fidelity Digital Assets, Interactive Brokers launching crypto trading services with Paxos) or using cash on hand (piled up during the lucrative crypto bull market) to acquire regulated businesses (see BitMEX’s failed bid for one of Germany’s oldest bank, acquisition of FairX by Coinbase, FTX’s former acquisition of LedgerX and its potential bid for Robinhood).
One of the main advantages of the latter strategy is that it is easier and faster for crypto exchanges to buy regulated providers (as going concerns) rather than going through the sometimes long and painful process of acquiring regulatory licences.
Plenty of synergies for FTX and Robinhood to capitalise on
Focusing on the FTX – Robinhood rumour, here there might also be lots of additional synergies to capitalise on. Robinhood is a regulated service provider mainly operating in the retail market, with a significantly larger customer base of around 22 million. FTX is a crypto exchange with only around 1-2 million customers.
The profile of Robinhood’s customers could also be attractive for FTX (mainly young, mobile-first customers who might also be susceptible to crypto). “Given that FTX has initially been dedicated to serve professional rather than retail traders on its platform, a potential acquisition could open up the opportunity to build an integrated platform serving both professional and retail customers,” said Zoltan Kormanyos, general counsel at BrokerChooser.
Robinhood stock price looks attractive for a buyer
This also looks like mutually beneficial opportunity coming at a very attractive price. Looking at the share price of Robinhood, it’s down more than 70% compared to the IPO, while FTX’s CEO Bankman-Fried also already has a 7.6% stake in the company. “After the lucrative crypto bull market, and despite the recent downturn, crypto exchanges are in the money and they are looking to spend it wisely,” said Kormanyos.
On the other hand, Robinhood is struggling financially and its payment for an order flow based business model is also under heavy regulatory scrutiny. A potential merger and/or partnership might also lead to a competitive advantage allowing the brokers to provide an integrated crypto exchange/brokerage service to their retail customer base with FTX on a mission to bring blockchain-based trading and clearing into the mainstream.
“At this point, we are not really seeing any antitrust or anti-competitive issues as neither Robinhood nor FTX is an extremely dominant player on their markets as well as they are operating on different markets,” said Kormanyos. “So we can’t see any concerns from a competition perspective.”
