Coinbase spends US $2.90 billion on Crypto options platform Deribit

Coinbase Global has announced the $2.9 billion acquisition of crypto options exchange Deribit. A deal which could signal a watershed moment for cryptocurrency markets.

This deal represents Coinbase’s most aggressive move yet into the Crypto derivatives sector, which has long been dominated by offshore exchanges.

Through the acquisition of Deribit—which processed an impressive $1.20 trillion in trading volume last year, Coinbase hopes to secure a leading position for itself in crypto options trading.

The move towards institutional flow offers Coinbase the potential to access a higher quality of trading volumes and associated revenues.

Deribit offers something Coinbase couldn’t easily build from scratch: a mature options trading infrastructure, with established liquidity and institutional relationships.

Since its founding in 2016, Deribit has cultivated deep market expertise in Bitcoin and Ethereum options and other derivatives.

Deribit’s current product offering includes the following:

• Inverse options for BTC and ETH.
• Inverse futures and perpetual contracts for BTC and ETH.
• USDC settled options, perpetuals, and futures for several altcoins.
• Spot markets, including some yield-bearing assets and gold.
• DVOL futures, which allow traders to trade futures on the Deribit volatility index.

How does this acquisition fit with broader Crypto industry trends?

The proposed deal ties in with several market developments. Firstly, we’re seeing rapid consolidation across cryptocurrency exchanges, exemplified by Kraken’s US $1.50 billion purchase of NinjaTrader.

Secondly, the current administration’s pro-crypto stance has created a more hospitable regulatory environment for U.S.-based derivatives trading.

Exchanges are positioning themselves for what they perceive as the next phase of market evolution.

The emergence of ETFs on BTC Bitcoin and ETH Ether showed that there was institutional demand for Cryptocurrencies initially that may have been to create products to sell to retail traders, investment advisors and money managers.

However, there are also a growing number of dedicated institutional crypto trading businesses, who want to run strategies that involve the use of derivatives, multi-faceted trades and hedging via futures and options.

While Deribit has beena leading exchange in crypto options trading for some time, it faced increasing regulatory pressure, as a non-U.S. entity. Merging with Coinbase provides it with better regulatory clarity, and equally importantly, allows it to access Coinbase’s existing customer base. No doubt, more synergies and cross-selling opportunities will emerge as the deal comes to fruition.

How is Coinbase financing this purchase?

The US $2.90 billion consideration includes $700.0 million in cash and 11.0 million shares of Coinbase Class A, common stock.
The cash and share elements will help Coinbase’s to retain a portion of its cash reserves, while giving Deribit shareholders exposure to the potential upside of Coinbase.

Whose stock is listed on Nasdaq under the ticker COIN.

That stock is up +36.0% over the last month and by + 255.0% over the last 2 years.

However, given that two so-called powerhouses of the crypto trading world are combining. It strikes me as odd that the deal is being financed with fiat currency and old fashioned equity, rather than some kind of smart coin or token.

One could ask why anyone else should hold crypto if two major players in the space are transacting in traditional asset classes, and not digital ones?

Will anything change for retail traders because of the deal?

Retail investors will likely see expanded options offerings on Coinbase’s platform, potentially with simplified interfaces designed for less experienced derivatives traders.

Merging trading infrastructures will pose technical challenges, and regulatory scrutiny will be intense.

Additionally, Coinbase will need to carefully manage any cultural differences between the two organizations.

We’ve already seen Kraken’s counter-move, with its purchase of Ninja Trader.

Other major exchanges will likely accelerate their derivatives strategies through similar deals or product development.

This acquisition means that some cryptocurrency markets are starting to resemble structures found in traditional finance or TradFi.

However, by the same token, there are plenty of crypto professionals who believe that the future of the space does not lie in consolidation and large verticals.

But rather within DeFi and the promise of Web 3.0, its cross-chain protocols and decentralised exchanges.

Iain Rogers, Chief Growth Officer at VEAX, a decentralised exchange that leverages the NEAR protocol, put it like this:

“DeFi isn’t just a disruptive idea —it’s an evolution, a revolution even. A DEX and DEFI ecosystem like the one that VEAX offers provides the freedom, flexibility, and fairness that legacy exchanges can’t match.

He added

“The rules are changing, and we’re building a new game.”