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What crypto exchange FTX looks for in M&A

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May 25, 2022
Illustration of an open briefcase full of coins.

Illustration: Aïda Amer/Axios

In a conversation with Felix Salmon at an Axios event in Davos, FTX US president Brett Harrison shared details of how the company approaches potential M&A targets.

Driving the news: Harrison said there were two main reasons for FTX to make an acquisition: either to acquire users or to acquire licenses more quickly than it would be able to in its normal course of business.

  • On the user front, he cited the company's purchase of crypto tracking app Blockfolio, which he called "a great user acquisition play for us because we got several million customers into FTX."
  • As for licenses, he gave the example of LedgerX, which "gave us the ability to have these CFTC licenses that often take 2-5 years to obtain."

Of note: Harrison directly shot down a report earlier this week that the company was looking to acquire a brokerage startup.

  • "The article that came out about us being interested in buying Public or WeBull or Apex was just BS. But, whatever, that happens to us a lot," he said.

The intrigue: FTX CEO Sam Bankman-Fried purchased a 7.6% passive stake in Robinhood two weeks ago, leading to some speculation that the companies could merge. Harrison also threw cold water on that notion.

  • "We've been interested in that business for a long time, but I don't think we have any plans to buy Robinhood," he said.
  • Instead, he offered that the primary reason for the purchase was that it might be a good time to invest when "all these high-growth stocks that are down, sometimes 80-90% from their all-time highs."

Yes, but: That's not to say FTX couldn't learn from what Robinhood is doing to attract customers as a retail stock trading business.

  • "It's amazing what they've done in such a short time, to have 20-25 million customers," he said. "And we would like to be able to address similar goals to Robinhood for making finance and investing easier and open to more people, and lower cost."
  • "We saw [their crypto business] was pretty bare bones... and yet, a huge percentage of their revenue now is from crypto. We thought we have a great crypto offering, and maybe if we add a mediocre stock offering, then we can start to attract customers who don't want to split their savings between two different applications," he added.

The other side: On the other hand, in launching its stock offering, FTX decided to distinguish itself from Robinhood and several other trading apps by buying directly from exchanges and not taking payment for order flow.

  • "We're in a great position as a company that our revenues come from crypto trading as our high-margin business, so we don't have to make money on the stock side," he said.
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