Crypto.com, the fast-expanding Singapore-based cryptocurrency exchange, has forged a deal with IG Group to snap up two assets that would give it a foothold in the tightly regulated US derivatives market.
The company, which grabbed attention last month when it paid $700m to rename Los Angeles’ main basketball arena, on Wednesday agreed to a $216m deal to buy IG’s stake in a US futures exchange and a binary trading group owned by the FTSE 250 company.
The deal would give Crypto.com a route to offer some derivatives and futures to US customers, an area that has proved difficult for crypto exchanges given the strict regulations around providing these risky investment products to retail investors.
Kris Marszalek, chief executive of Crypto.com, said the acquisition “will give our customers access to an entirely new set of financial tools to complement our current offering”.
The deal includes North American Derivatives Exchange (Nadex), which offers traders binary bets on whether something will happen, such as the rise or fall of a currency, commodity or index, within a particular timeframe.
That can be as short as five minutes. Options providers usually allow customers to magnify their bets using borrowed money, vastly increasing potential winnings and the size of the losses to which consumers are vulnerable. Nadex says customers are told their maximum potential gains and losses before the trade is executed.
IG Group will also sell its 39 per cent stake in Small Exchange, a futures exchange focused on retail traders, launched last year with backing from leading Wall Street players including Citadel Securities, Jump and Interactive Brokers along with Peak6, a private equity vehicle run by former Chicago options trader Matt Hulsizer.
The groups said the deal was expected to close in the first half of 2022, subject to regulatory approval. Both companies were to be brought under the Crypto.com brand, the exchange said, but their chief executives would remain in place.
June Felix, chief executive of IG Group, said the sales would allow the company to “further sharpen our focus” on integrating and expanding its options and future business via Tastytrade, the US brokerage it bought for $1bn in January.
Although highly lucrative, derivatives have proved troublesome for some crypto groups given that the risky instruments are tightly controlled by regulators in many countries.
A US federal court earlier this year ordered crypto operator BitMex to pay a $100m civil penalty for offering leveraged crypto trading without proper authorisations.
The Commodity Futures Trading Commission, which regulates the US derivatives market, brought the suit in 2020 alleging BitMex had been “illegally operating a cryptocurrency derivatives trading platform”. BitMex said at the time that it took its “responsibilities extremely seriously, and will continue to actively engage with regulators around the world”.
Crypto.com, a five-year-old privately held company that has 3,000 employees around the world, has recorded 20-times revenue growth this year and thrown off substantial cash, Marszalek told the Financial Times last month, as trading in digital assets booms.