The revelation that digital assets derivatives exchange FTX is funding between $400 million and $1 billion at a $20 billion value comes amid a general bad market and reports of a possible IRS crackdown on cryptocurrency.
The news is that FTX is on the cusp of finalizing a $20 billion investment round. The funds designated for conquering Wall Street, might be a bullish indicator for the market, especially at the end of a turbulent week.
Instead, in the previous 24 hours, FTX’s own FTT token dropped about 10%, accelerating faster than the total market loss.
The Block’s analysis comes while the market is experiencing a difficult downturn, which some dubbed the start of a bear market.
Within the last ten days, Elon Musk, a former bitcoin devotee, has renounced bitcoin. Beijing reiterated that China’s ban on bitcoin remains in place and expanded to include new digital asset products. The IRS received a new mandate and ammunition to combat money laundering and tax fraud via crypto, and now Ethereum founder Vitalik Buterin joined the fray with talk of a bubble.
According to Buterin, the reason bubbles burst is frequently because the technology isn’t quite there yet. He went on to say that concerns about bitcoin’s energy consumption were valid.
He went on to add that resource usage is unquestionably massive. It’s hardly the kind of thing that will end the world on its own, but it is a huge disadvantage.
They move from utilizing the same amount of energy as a medium-sized country to that of a village. There’s a good chance Bitcoin will leave behind if it continues to use its current technology.
FTX, like Binance and other offshore digital asset exchanges, says it does not let US nationals trade on its platform. However, FTX, like Binance, has a regulatory-compliant platform called FTX.US.
The firm announced in late March that it paid $135 million for the naming rights to the Miami Heat Arena. A few weeks later, FTX announced the appointment of Brett Harrison, a former Citadel Securities executive, as president of FTX.US, to help scale the company.
FTX.US is merely a fraction of the size of its mothership, with a volume of $354 million.
One of the interesting facts in The Block’s research is the revenue from fees. Which expects to reach $400 million in 2021, up from $85 million in 2020. FTX, on the other hand, made $85 million in fee revenue last year.
According to Coinbase’s most recent earnings report, the company made $1.8 billion in revenue in the prior quarter.
When you compare the corporate structures, though, things get interesting. FTX is a lean operation that isn’t as reliant on trading commissions. According to LinkedIn, the company employs 63 people, while Coinbase employs nearly 1,700.
According to CoinGecko, FTX has a 24-hour trading volume of $16 billion, whereas Coinbase has roughly $8.3 billion.
The distinction between the two companies is that FTX’s revenue isn’t as reliant on trading fees. It offers a wide range of services, including loan, staking, and a wide range of derivatives markets. Including non-crypto commodities such as oil and lumber.
In April, FTX traded $100 billion in bitcoin futures. Which Coinbase is simply not authorized to do in order to be in compliance with the CFTC.
Simultaneously, analysts pointed out that Coinbase’s shortcoming and why its price isn’t soaring is its lack of various revenue streams. COIN will hit the worst when fee compression occurs, according to analysts.
One of FTX’s main advantages is that it is not subject to the same regulatory oversight as Coinbase. Coinbase is situated in the United States and regulated, while FTX incorporates in Antigua and Barbuda with offices in Hong Kong.
Coinbase argued in its S-1 filing that it had to compete against unregulated, offshore exchanges.
According to the filing, their principal source of competition is from corporations based outside the United States. Who are subject to much fewer regulatory and compliance obligations in their respective nations.
