The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
What FTX acquiring Robinhood would really mean for the financial market, expert reveals all
On Monday it was reported that FTX was exploring the possibility of a deal to purchase Robinhood. Bankman-Fried has now denied these rumours, but what would a deal like this mean? And are we seeing similar patterns emerge in the wider market?
Zoltan Kormanyos, general counsel at BrokerChooser international broker comparison website commented on the report that FTX is looking to acquire Robinhood:
“The rumour of this deal fits nicely into a wider trend we have observed in our crypto exchange safety index research. The trend is that the world of traditional finance and the crypto world are coming closer together. In case this trend continues in the next few years the line between these markets will become blurry and then could even slowly dissolve.
Crypto exchanges that seem to play a long game (i.e. trying to operate in a more transparent and compliant way) are discovering ways to step into regulated markets such as brokerage and custody. There are different strategies like building up-regulated business lines from the ground up (see Gemini and their FINRA registered broker dealer entity Gemini Galactic Markets and Binance’s failed attempt to launch a regulated business in Germany, Fidelity building up its digital business via Fidelity Digital Assets, Interactive Brokers launching crypto trading services with Paxos) or using cash on hand (piled up during the lucrative crypto bull market) to acquire regulated businesses (see BitMEX’s failed bid for one of Germany’s oldest bank, acquisition of FairX by Coinbase, FTX’s former acquisition of LedgerX and its potential bid for Robinhood).
One of the main advantages of the latter strategy is that it is easier and faster for crypto exchanges to buy regulated providers (as going concerns) rather than going through the sometimes long and painful process of acquiring regulatory licences.
Focusing on the FTX – Robinhood rumour, here there might also be lots of additional synergies to capitalise on. Robinhood is a regulated service provider mainly operating in the retail market, with a significantly larger customer base of around 22 million. Whereas FTX is a crypto exchange with only around 1-2 million customers. The profile of Robinhood’s customers could also be attractive for FTX (mainly young, mobile-first customers who might also be susceptible to crypto). Given that FTX has initially been dedicated to serve professional rather than retail traders on its platform, a potential acquisition could open up the opportunity to build an integrated platform serving both professional and retail customers.
Furthermore, it shouldn’t be ignored that this mutually beneficial opportunity is coming at a very attractive price. Looking at the share price of Robinhood, it’s down more than 70% compared to the IPO, while FTX’s CEO Samuel Bankman-Fried also already has a 7.6% stake in the company. As we mentioned above, after the lucrative crypto bull market, and despite the recent downturn, crypto exchanges are in the money and they are looking to spend it wisely.
On the other hand, Robinhood is struggling financially and its payment for order flow based business model is also under heavy regulatory scrutiny. A potential merger and/or partnership might also lead to a competitive advantage allowing them to provide an integrated crypto exchange/brokerage service to their retail customer base with FTX on a mission to bring blockchain-based trading and clearing into the mainstream.
At this point, we are not really seeing any antitrust or anti-competitive issues as neither Robinhood nor FTX is an extremely dominant player on their markets as well as they are operating on different markets. So we can’t see any concerns from a competition perspective.