What’s the next step for SBF’s business landscape after the bear market dips?

Anyone who has followed the market this year should know that this round of Crypto market trends is not optimistic.

Under the continued effects of rising interest rates, inflationary pressures and global asset price contraction, a menacing recession has engulfed the entire Crypto market, and no digital currency or NFT has been spared. Altcoins such as Solana and Avalanche have fallen by an astonishing 80% year-on-year, with Ethereum also down 70%; at the same time, Bitcoin, a veteran of the Crypto market, has fallen by nearly 60% at the beginning of the year.

As the Crypto wave receded, the real situation in the Crypto market gradually became clear. As the saying goes, “Across the sea, the hero shows his true character”, 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. Even in the ever-changing Crypto market, it is absolutely uncommon for so many well-known brands to explode their positions at one time. Over the past few weeks, companies such as Celsius, CoinFLEX, Three Arrows Capital, and Voyager Digital have all been in the process of restructuring debt and restricting customer withdrawals, or even going straight into bankruptcy. These days, companies have been making headlines every day for debt problems or mass layoffs. Crypto’s woes are far from over, at least for now.

However, while the industry-wide crisis has dragged all the major Crypto companies to the brink of oblivion, one company remains on the battlefield — and that is FTX, a Bahamas-based supercompany whose market value has reached billions of dollars. Led by the altruistic Sam Bankman-Fried, FTX is in a better position than any other Crypto company during 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:

What's the next step for SBF's business landscape after the bear market dips?

Not only that, but at the peak of the hype in 2021, FTX launched a large-scale financing campaign, which eventually resulted in nearly $2 billion in funding, with a market valuation of $32 billion. In October 2021, FTX conducted a second round of financing with a total of $420.69 million in funding, at which time Bitcoin had basically reached a cyclical high, as shown in the following figure:

What's the next step for SBF's business landscape after the bear market dips?

While other institutions and retail investors have increased their leverage and plunged into the non-stop long Crypto trading, FTX is already using the hype to strengthen its balance sheet – something that most Crypto companies obviously cannot match.

Did SBF foresee the coming Crypto winter? Could his team have predicted that rising interest rates would lead to a cascade of liquidity crunch across the industry? Did FTX complete the sell-off at the 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, and at the same time ensures FTX’s growth for many years to come.

Crypto Market

Few companies have seized the market as well as FTX. In a bear market environment, the large capital held by FTX allows it to complete strategic investments at a very suitable price, and also consolidates its position as the world’s top Crypto company. According to SBF, the trading platform plans to spend between $2 billion and $3 billion in mergers and acquisitions and other types of investments in the coming quarters.

However, opportunities always coexist with challenges, and new problems are constantly emerging. FTX now has to think about how they can 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 and beyond.

Although this question has not been fully answered, from the current situation, we can basically 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 goals, which is to develop its influence in the global Crypto market, acquire new customer groups (mainly retail investors), and design new Crypto trading products. In February of this year, FTX announced the acquisition of Liquid Group, an Asian Crypto trading platform with operations in Japan, Singapore and Vietnam, with an annual trading volume of about $60 billion. A few months later, it also acquired Bitvo, one of Canada’s largest Crypto exchanges, and secured a license from Cypriot regulators to gradually enter the European market.

This series of transactions has expanded FTX’s market footprint and won it more global regulatory seats. With the efforts of SBF and its team, more retail investors and institutions are starting to invest in the Crypto ecosystem, and since this is related to their core vision, I think these investments tend to be less risky and manageable.

Not only that, when some Crypto companies encounter financial problems, FTX will also play the role of non-performing asset investors and lenders 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 attracted many questions 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 also provided a corresponding line of credit to Voyager, a trading platform facing financial difficulties.

However, I don’t quite understand this approach of FTX. In my opinion, FTX could have taken advantage of this bear market to make a lot of money, such as investing in key companies or making reasonable mergers and acquisitions, so as to achieve the same results as the Citadel hedge fund 20 years ago. And, whether it’s lending funds to struggling businesses or buying options to buy companies, it doesn’t help much in advancing FTX’s long-term strategy. So the point of my confusion is why FTX didn’t buy BlockFi outright at a low price, but rather spend more money to see how the company performs in the future.

In my opinion, FTX’s use of an options strategy rather than an acquisition strategy is actually a response to Crypto’s near-term uncertainty so that they don’t have to invest a lot of money until the market stabilizes. However, even at a low price, doubling down on investing in a jailed Crypto company would present a huge risk to FTX, making investment woes difficult to overcome.

traditional financial market

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

FTX’s path to TradFi began with the acquisition of derivatives clearing firm LedgerX for an undisclosed amount in late 2021, followed by the launch of FTX Stocks, the acquisition of brokerage provider Embed Financial, and an IEX investment of around $100 million in early 2022. Since then, FTX has been committed to developing into an all-in-one retail trading platform covering Crypto, stocks and futures, while preparing for digital assets to become securities in the United States.

There have been rumors for months that FTX has been considering the acquisition of Robinhood, and once the acquisition is successful, FTX will successfully enter the TradFi retail space. At that time, competitors, retail investors and regulators in the traditional financial market will have to pay careful attention to the progress of FTX. And now, Robinhood’s YTD has fallen by more than 50%, which means its acquisition price will also be lower.

Nonetheless, I still feel almost zero chance of FTX partnering with Robinhood for a few reasons: First, given Robinhood’s ~$8 billion price, the deal will significantly impact FTX’s balance sheet, which is what FTX uses for More than twice as much for the acquisition; secondly, FTX publicly stated after launching its retail brokerage service that it would no longer accept payments for order flow, a practice that was controversial to some, and that Robinhood also primarily uses. form of payment. I would certainly be quite surprised if FTX changed their view on options customer order flow feedback just a few months later with the acquisition of Robinhood.

However, the biggest obstacle to FTX’s merger with Robinhood actually comes from SBF’s recent purchase of an 8% stake in Robinhood. If FTX does acquire Robinhood in the near future, SBF will definitely face insider trading charges, 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 acquire Robinhood soon? Did his holdings influence FTX’s decision? Will regulators charge him in court? SBF has always had a good reputation in the Crypto space and has a lot of positive news, so I don’t think he will buy Robinhood at the expense of his good image.

Epilogue

In retrospect, FTX has been successful in the Crypto space, there is a lot of money in the bank to buy cheaply, but it also faces a lot of dilemmas. Mergers and acquisitions are becoming increasingly important for all trading platforms—successful mergers and acquisitions can make a trading platform an overnight success and deliver decades-long returns to its shareholders; Trading platforms, on the other hand, will soon stagnate and fall behind. And for FTX, what will happen to them after they spend all their money to invest?

If I were in FTX’s position, I would definitely be looking for investments that would achieve its growth goals – diversify while maintaining existing businesses. One way to do this is to acquire retail investors in adjacent asset classes and increase Crypto’s market share among those users (Robinhood trading is an example of this strategy); another is to disrupt Crypto Investing in areas of sexual effect (such as games or the music industry). FTX could buy a TradFi market maker and combine its operations with Alameda’s. At the same time, it can also enter the blockchain-based carbon trading market. In general, the future of FTX has infinite possibilities and the future is bright.

Of all the possible deals, OTC Markets Group is definitely the one that stands out. This is a trading center with a market value of about $650 million that includes nearly 12,000 OTC securities.

OTCM will help FTX diversify into the Crypto space: OTCM makes money by collecting and distributing quotes and pricing information for thousands of securities not listed on primary trading platforms. Brokerage firms buying and selling these securities need to purchase OTCM’s data in the form of recurring subscription fees, which guarantees OTCM’s earnings to a certain extent, while it is also less susceptible to Crypto price fluctuations. FTX can use OTCM to improve its position among TradFi brokers and regulators while growing its market data business.

At the same time, OTCM will also support FTX’s existing business: FTX can use OTCM in many interesting ways to accelerate the adoption 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 types of securities, OTC penny stocks and foreign ADR stocks are good choices. In addition, the surge in penny stock trading during the new crown is also a positive factor for FTX – OTCM can take this opportunity to help FTX attract a large number of retail investors at low prices.

With an enterprise valuation of just $600 million, OTC Markets Group is quite affordable for FTX and fits within their budget. FTX can buy OTCM at a reasonable price, and still have a lot of money left for other investments. Considering the exchange’s annual revenue is around $30 million, the price FTX is paying doesn’t look exorbitant at the moment.

Regardless of their final decision, I hope that FTX will eventually overcome the obstacles and outline their investment blueprint in accordance with the new market structure. I believe that SBF and his team are still exploring all possible ideas.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/whats-the-next-step-for-sbfs-business-landscape-after-the-bear-market-dips/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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