Bernstein's Digital Assets Memo: 'Crypto M&A Power Moves'

A Bernstein analyst shares insights on the crypto market, noting the impact of a gradually easing regulatory environment.

The analyst commented: "We are heading towards more integrated one-stop shop multi-asset investment platforms. Crypto exchanges offer crypto tokens. Broker/ dealers offered equities and equity derivatives. Are these models now converging? Brokers are offering crypto tokens and crypto exchanges could be integrating traditional equity & derivative products. Further, the crypto derivatives opportunity in the U.S has massive headroom - offshore derivatives (perpetual futures) has been 3-4x the spot market and just BTC/ETH futures traded $31Tn last year outside the U.S. In contrast, CME which offers BTC/ETH futures trades around ~$2.5Tn in annual volume. The Crypto options market in the U.S is nascent, restricted to select CME options on Bitcoin futures. With the SEC/CFTC turning crypto friendly, we expect, the U.S onshore crypto opportunity to expand, across crypto spot and derivative markets, including allowing crypto platforms to offer traditional assets and vice-versa, broker platforms to offer multiple assets.

Deribit (private) is a global market leader in crypto options (largely BTC/ETH) to non-US markets. Deribit is licensed out of Dubai, regulated by VARA (Virtual Asset regulatory authority). For e.g., outside U.S., BTC and ETH options market volumes exceed ~$100bn/month (last 12 months average), with Deribit’s market share ~70%. Deribit also offers crypto futures - Jan 2025 volumes ~$45bn. Our calculation suggests that Deribit annual revenues could be in the range of ~$0.5bn at the current revenue run-rate (3-4 bps fee). Deribit also works with Paradigm (OTC Institutional platform) to obtain institutional block orders for bespoke options contracts. More than 50% of Deribit options volume is driven by Paradigm, implying higher share of institutional volumes. Thus, Coinbase’s potential acquisition interest in Deribit is not surprising to us, allowing Coinbase to expand into derivatives (particularly options). We think it would also allow Coinbase to take the fight back to Binance in international crypto derivative markets.

Similarly, Kraken (private) announced a $1.5Bn acquisition of NinjaTrader. NinjaTrader is a U.S based equity futures platform - operates as CFTC registered Futures Commission Merchant (FCM). According to the press release, this would strengthen Kraken’s position in the U.S with a futures license, allowing it to offer crypto futures, but also expand into equity/forex futures with an active base of traders to cross-sell. Kraken also has licenses in UK/EU and Australia, which could offer opportunities to expand the NinjaTrader platform outside the U.S.

Robinhood is in the process of integrating Bitstamp crypto exchange in H1’2025. Apart from offering crypto services on its core broking platform, Robinhood seeks to offer the full-suite of crypto exchange services via Bitstamp. Also, leverage Bitstamp to enter the institutional crypto market in the U.S and outside. Robinhood CEO has advocated his vision to integrate blockchain tech for the massive equity tokenisation opportunity. Thus, we see a world where, crypto exchanges will offer spot crypto, crypto derivatives, equity & equity derivatives including tokenized equities. Similarly, new-age broker platforms such as Robinhood will scale up crypto/crypto futures, including native-crypto exchanges. The wild card here could be tokenization. In our view, tokenization will blur the gap between crypto tokens and equities, as traditional equity assets are tokenized on the blockchain. With the Digital assets market structure bill (expected in 2025), we expect more clarity on digital asset securities, tokenisation and role of intermediaries. We expect the overlap between crypto exchanges and broker/dealers to further expand.

MSTR: Strategy has announced a perpetual preferred stock offering (STRF) of 8.5 million shares ($722.5mn) to fund additional Bitcoin purchases. STRF will offer 10% annual dividend on stated value of $100 to the shareholders, payable quarterly. This is part of MSTR’s 21/21 capital raise plan. The company has already issued ~80% of equity, so it has shifted focus to fixed-income securities now.

HOOD: Robinhood is working with Kalshi, a company that is “federally regulated as a Designated Contract Market by the Commodity Futures Trading Commission (CFTC)”, to launch a hub focused on politics, economics, and sports. This platform will allow users to predict and bet on the outcomes of various events.

COIN: In a recent proposal, Coinbase has outlined key recommendations to the SEC to bring clarity to digital asset regulations amid shifting regulatory outlooks. The company suggests the SEC define digital commodities vs. securities, and confirm that secondary market trades of digital commodities aren’t subject to securities laws. Additionally, Coinbase advises deferring stablecoin regulation to Congress, given ongoing legislative efforts. Lastly, they encourage the SEC to support tokenizing traditional securities."

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