It would seem a tall order to bring a bankrupt crypto trading platform mired in fraud allegations back to life. But FTX CEO John J. Ray III says he might try.
In an interview with The Wall Street Journal, Ray said he’d set up a task force to explore restarting FTX.com, citing customers who praised the exchange’s technology. The company had also mentioned the initiative in a bankruptcy court filing earlier in the week.
Before imploding last November, FTX was the second-largest crypto exchange by volume on most days, behind Binance.com and ahead of
(ticker: COIN). Since then, much of FTX’s lost volume seems to have accrued to Coinbase, according to a research note last week by D.A. Davidson analyst Chris Brendler, with the exchange’s share of all crypto trading growing from roughly 3% in October to 5% by the end of the year.
But while Coinbase investors have plenty of legitimate fears amid the crypto market’s struggles, the potential return of FTX from the dead shouldn’t be one of them.
Even at first blush, the restart of FTX would seem a near-insurmountable challenge. The FTX brand has been destroyed, and the professional and institutional investors that FTX catered to are also the most keen on avoiding the potential reputation risk that could come from signing onto the exchange again.
“Given the pain and suffering that customers have had, I’m not sure what a reboot looks like,” Brendler says.
FTX declined to comment.
Some of the company’s trading systems, which many investors said were some of the most advanced and easy to use in crypto, likely have the most value housed in another exchange, one without FTX’s baggage.
Its second challenge would be regulatory. One of the biggest costs of establishing a financial-services business, whether in the U.S. or elsewhere, is winning the myriad licenses needed to operate legally. In the U.S., for example, many crypto exchanges have taken the tack of getting approval as a money-services business in individual states, requiring applications with dozens of different regulators. Officials including Securities and Exchange Commission Chair Gary Gensler say that even those registrations are likely insufficient to operate legally.
FTX.com’s parent company, Bahamas-based FTX Digital Markets, had a license to operate from the Bahamas Securities Commission, but that license has been suspended.
All that’s to say that it likely wouldn’t be as simple as flipping the switch back on FTX’s systems if its new executives were to decide to move forward with a restart, says Brendler, who has a Buy rating on Coinbase shares.
The biggest threat to Coinbase from competitors might not come from other crypto firms at all, but from traditional brokerages that are starting to offer crypto trading alongside that of stocks and bonds.
“If you’re lining up competitors here in the U.S., I’m going to be much more concerned about a reputable name like Fidelity than I am about FTX,” Brendler says.
Write to Joe Light at firstname.lastname@example.org