Crypto heading toward 'one-stop-shop' multi-asset investment platforms as M&A activity heats up: Bernstein

The crypto industry is heading toward more integrated "one-stop-shop" multi-asset investment platforms as exchanges and broker/dealer models start to converge, according to analysts at Bernstein.

"With the regulatory environment easing, crypto exchanges and broker/dealers are making M&A power moves," the analysts led by Gautam Chhugani wrote in a Monday note to clients, as traditional brokers seek to offer crypto tokens and crypto exchanges make plans to integrate traditional equity and derivative products.

The analysts argue that the crypto derivatives market in the U.S. has significant growth potential, as offshore markets, like perpetual futures, are three to four times larger than the spot market. Bitcoin and Ethereum futures traded $31 trillion last year outside the U.S., compared to around $2.5 trillion annually on the U.S. CME, they said.

Meanwhile, the U.S. crypto options market is still in its early stages, mostly limited to Bitcoin futures options again on the CME. However, with the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) becoming more supportive of crypto, the analysts expect the onshore U.S. market for both spot and derivative crypto products to expand. This could lead to crypto platforms offering traditional assets and vice-versa, enabling broker platforms to offer a broader range of assets, they noted.

On Thursday, crypto exchange Kraken, which claims to serve 15 million users globally, announced it had agreed on a deal to acquire U.S. retail futures trading platform and CFTC-registered Futures Commission Merchant NinjaTrader for $1.5 billion — the largest-ever such deal between crypto and traditional finance, subject to certain purchase price adjustments.

Following the completion of the deal, expected in the first half of this year, it would strengthen Kraken's position in the U.S with a futures license, allowing it to offer crypto futures but also expand into equity and forex futures with an active base of traders to cross-sell, the analysts noted. Kraken also has licenses in the UK, EU and Australia, which could offer opportunities for NinjaTrader to expand outside the U.S.

Coinbase to 'take the fight back' to Binance in international crypto derivative markets

A day later, Bloomberg reported that the biggest U.S. crypto exchange, Coinbase, is in "advanced" talks to acquire the world's largest trading platform for bitcoin and ether options, the Dubai-licensed Deribit, citing anonymous sources. Deribit's BTC and ETH options market monthly volumes exceed $100 billion, representing around a 70% market share, the analysts said, with monthly crypto futures volumes of around $45 billion.

Bernstein estimates Deribit's annual revenue at around $500 million. It also partners with Paradigm's OTC platform to handle institutional block orders, with over 50% of Deribit's options volume coming from Paradigm, according to the analysts. Given this, Coinbase's potential interest in acquiring Deribit makes sense, allowing it to expand into derivatives, particularly options, and "to take the fight back to Binance in international crypto derivative markets," they said.

Another notable acquisition comes with brokerage platform Robinhood being in the process of integrating crypto exchange Bitstamp, Chhugani noted, expanding its current limited crypto service offering with a full suite of crypto exchange services and leveraging Bitstamp to enter the institutional crypto market in the U.S and internationally. Robinhood CEO Vlad Tenev has also recently advocated for greater tokenization, seeing it as a means to "unleash the true power of the crypto revolution" by enabling real-world assets, such as equities and private investments, to be brought onto blockchain technology, Chhugani added.

Crypto and tradfi converge

Ultimately, the Bernstein analysts envision a future where crypto exchanges offer spot crypto, crypto derivatives and tokenized equities, along with equity and equity derivatives. At the same time, broker platforms like Robinhood will expand further into crypto and crypto futures. 

Tokenization could be the key factor, as it will blur the lines between crypto tokens and equities by tokenizing traditional assets on the blockchain, they said — adding that with the Digital Assets Market Structure Bill expected to pass this year, more clarity on digital asset securities, tokenization and the role of intermediaries will see the overlap between crypto exchanges and brokers continue to increase.

Chhugani maintains long positions in various cryptocurrencies. Certain affiliates of Bernstein act as market makers or liquidity providers in the equities securities Robinhood.