The SkyBridge Alternatives (SALT) hedge fund conference looked a little different this year. Crypto was the big theme, with some of the top sponsors—FTX, NYDIG, Circle—hailing from the digital coin industry.
On Monday, I hosted a panel on crypto regulation at the event. The session featured a few key legal executives at top crypto companies, including Ryne Miller, general counsel for FTX.US, an affiliate of FTX, the super-hot, Hong Kong-based crypto exchange. (You can read more about FTX in my colleague Claire Zillman’s recent profile of Sam Bankman-Fried, the company’s 29-year-old, billionaire founder.)
One point Miller stressed was his desire for clearer crypto regulations, a view shared by many of his peers. Miller proposed that the U.S. government create a single door upon which crypto companies may knock for guidance, rather than a hodge-podge of ambiguously overlapping agencies. He also suggested the U.S. adopt an innovation “sandbox” approach that would let crypto businesses experiment without fear of running afoul of the law.
Miller might soon get his wish—at least when it comes to clearer guidance. Gary Gensler, Chair of the Securities and Exchange Commission and, incidentally, Miller’s old boss (Miller worked as a legal counsel to Gensler when Gensler headed the Commodity Futures Trading Commission a decade ago), has been ramping up calls for better-defined rules governing the crypto industry—and for more authority to regulate these “Wild West” markets.
Alongside Miller, Zach Dexter, CEO and cofounder of LedgerX, the first U.S.-licensed crypto derivatives exchange, shared his hopes for more cooperation between regulators and businesses. He also told the audience about his company’s decision to be acquired by FTX.US for an undisclosed sum last month—a deal that is poised to let FTX.US start offering crypto derivatives trading in the U.S. The deal is expected to close in October, assuming regulators give their approval.
FTX, the U.S. affiliate’s namesake, built its success abroad by offering trading in crypto derivatives, such as options and futures contracts. FTX has nearly $7 billion worth of open interest in crypto derivatives in the past 24 hours, an amount that places it far ahead of most of the competition, such as exchanges Bybit, Huobi, and OKEx, according to data from market-tracker CoinGecko. Only Binance, with more than $10 billion worth of open active interest in futures contracts in the past 24 hours, exceeds FTX in the segment.
Crypto exchanges are making a push into derivatives because the market is a large and lucrative one. Like in equities, the market for crypto derivatives is larger than the traditional “spot” market, where the underlying assets themselves change hands. Long term, the potential is for these upstart exchanges to offer derivatives for asset classes beyond crypto, including stocks and especially tokenized versions of equities that entail global reach, instant trading, and no market closures.
FTX.US’s plan? Repeat the FTX playbook, except in a way that’s tailored to the U.S. market (and all its legal nuances). Of course, the company has a long way to go to outflank Coinbase, the biggest U.S. crypto exchange by trading volume. Signaling competition to come, Coinbase just applied to offer crypto futures trading of its own. (Coinbase is the world’s second-biggest crypto exchange, next to Binance; FTX ranks number four, while FTX.US is…sixtieth.)
If you’re a football fan, you may have caught the recent debut of FTX’s new $20 million national ad campaign. The first commercial features pro-football legend Tom Brady, who is an FTX investor, asking people, “You in?” While it’s too early to tell whether the ad-blitz is juicing customer acquisition, it’s certainly creating buzz, Miller said.
The derivatives market opportunity, however—that’s FTX’s Hail Mary pass.
Robert Hackett
@rhhackett
robert.hackett@fortune.com
DECENTRALIZED NEWS
Credits 🚀
Outspoken New York Mets owner Steve Cohen has invested in a new crypto trading firm called Radkl...Ark Invest's Cathie Wood sees Bitcoin hitting $500,000 in the next five years (it currently trades for less than $50,000)... Jump Trading has named 25-year-old former intern Kanav Kariya as the head of its crypto division... Money management giant Fidelity is pushing the U.S. Securities and Exchange Commission to green light its Bitcoin ETF application... Hedge fund billionaire Ray Dalio says "cash is trash"... But the founder of Bridgewater Associates worries governments will eviscerate crypto "if it's really successful"... Anchorage is working with Oasis Pro Markets to create a crypto dark pool... Crypto bull Michael Saylor's MicroStrategy keeps buying more Bitcoin... Polychain and Three Arrows Capital led a $230 million investment into the Avalanche Foundation... Digital assets wealth management startup Abra has raised $55 million with its eyes on the public markets... British online bank Revolut is paying WeWork for office space using Bitcoin... Katy Perry and Chainsmokers have invested in Ethereum- and Solana-built Audius... The retail-investor-beloved CEO of AMC Entertainment, Adam Aron, says the movie theater chain will eventually accept three additional cryptocurrencies, on top of Bitcoin.
Debits 🐻
SEC Chair Gary Gensler says stablecoins "may well be securities," much of the DeFi world is decentralized in name only, and that Coinbase lists "dozens of tokens that might be securities"... NFT marketplace OpenSea is grappling with an apparent insider-trading-like situation... OpenSea's head of product was asked to resign a few days after the insider-trading allegations emerged... Insurance giant MassMutual will pay $4 million for not properly overseeing the trading and online activity of its former employee Keith Gill, a.k.a. "RoaringKitty"... A fake press release was sent out this week saying Walmart would begin accepting Litecoin... Binance is dropping the whole decentralized headquarters concept... A legal skirmish between Jay-Z and fellow Roc-A-Fella Records founder Damon Dash is one of many raising unprecedented legal questions about the world of NFTs... A 24 year old behind a crypto Ponzi scheme was sentenced by a U.S. judge to more than seven years in prison.
FOMO NO MO
Decentralized finance, or DeFi, is setting off the alarm bells for regulators in Washington, D.C.
Officials have long mandated that financial intermediaries like banks and brokers/dealers collect information about their customers so that when suspicions arise, they can report such activity to the authorities for further investigation. But DeFi is offering opponents of such so-called know-your-customer provisions an alternative world, one where, as the Financial Times reported this week, financial services functions can operate just as a self-driving car would. From the article:
“DeFi is using loopholes in regulation because they don’t actually hold the customer’s money, unlike a broker,” says David Jevans, chief executive of CipherTrace, a cryptocurrency intelligence company started in 2015 with funding from the US Department of Homeland Security to help prevent financial crime. “This has allowed a nice wave of innovation, which is great. But it also allows a wave of innovation by people trying to launder money through the system.”
The question facing US officials is “how does a person who writes some software get regulated” by the Treasury or the Securities and Exchange Commission, he adds, estimating it could take two years for the resulting legal challenges to unfold. “We will see how it shakes out.”
BUBBLE-O-METER
$25 billion
Crypto is quickly emerging as a new option for loan seekers, The Wall Street Journal recently reported. One group of crypto lenders even has $25 billion of outstanding loans to its individual and institutional clients, according to the report, which cited Messari data. That's up from $1.4 billion a year ago.
THE LEDGER'S LATEST
With crypto concerns on the rise, SEC's Gensler calls for help from Congress by Declan Harty
Like GameStop but radioactive: Uranium next in line for meme-stock treatment by Sophie Mellor
Social network Minds pours 25% of balance sheet into crypto by Rey Mashayekhi
Months after the SPAC boom, returns have been 'weak,' says Goldman Sachs by Anne Sraders
Bitcoin and Ethereum gain, stocks teeter ahead of a big batch of labor and retail data by Bernhard Warner
Goldman Sachs dives into Fintech's latest trend with GreenSky by Lucinda Shen
NYSE's new investment vehicle—'natural asset companies'—will tap into ESG fever by Declan Harty
Lawmakers move to close $16.8 billion crypto tax loophole by Chris Morris
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
MEMES AND MUMBLES
Who gets to own "Dogecoin"? Anyone can buy into the one-time joke cryptocurrency that has since amassed a market value quantified in the tens of billions. But the U.S. Patent and Trademark Office is trying to answer the question from an entirely different lens: its name, according to The Wall Street Journal. Six claims to the Dogecoin brand name are currently with the office, with its original creators and supporters competing against a pack of other spin-offs that have latched onto the name. As Chris Bendiksen, head of research at CoinShares, told The Journal: "It was going to have copycats or copydoges. It's the nature of this space."
This issue of Fortune’s The Ledger was assembled by Declan Harty, who you can follow here.
