by Emma Newbery | Published on Sept. 2, 2021
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Crypto derivatives exchange FTX is having a great couple of months.
The popular cryptocurrency derivatives exchange FTX is having an outstanding few months. The price of its utility token, FTT, has risen over 130% in just six weeks according to CoinMarketCap data, following a flurry of announcements.
Sam Bankman-Fried is something of a crypto superstar. The 29-year-old billionaire co-founded quantitative trading firm Alameda Research with Gary Wang in 2017. The pair went on to launch FTX two years later. Bankman-Fried believes in effective altruism, living life to maximize the good you can do in the world.
FTX offers crypto derivatives trading, including futures and options. Instead of more traditional margin trading, which traders can use to multiply their gains or losses, FTX uses leveraged tokens. These let customers take a leveraged position without dealing with the complexities of full margin trading. Its U.S. site, FTX.US, has a limited selection of services because of the restrictions on retail derivatives trading.
Derivatives are advanced trading products that involve trading contracts to buy or sell a product without necessarily owning the underlying product itself. They allow traders to speculate on whether a market will rise or fall.
FTX set out to solve a number of problems faced by other derivatives exchanges, such as tedious trading processes, poor liquidity, and so-called "clawbacks." Clawbacks are when money is taken from various investors to cover another person's bankruptcy.
Alameda Research is a quantitative trading firm that manages over $1 billion in digital assets.
One big reason for FTT's recent price surge is the series of big news items we've seen, culminating in its recent acquisition of U.S. derivatives firm LedgerX.
Here's a quick rundown of FTX's recent announcements.
With so many cryptocurrencies to choose from, if you invest for the long term, it's important to buy coins that have solid fundamentals and are likely to do well over time. Even then, only invest money you can afford to lose, as the cryptocurrency market can be incredibly volatile and risky.
As an exchange, FTX seems positioned to perform well in the long run, which bodes well for FTT. It has a great team and a clear business plan that sets out both the problems it wants to solve and how it proposes to address them. And, unlike many cryptocurrencies, it has a straightforward use case.
Plus, the recent LedgerX deal could help grow FTX.US's product offerings and differentiate it from the more established crypto exchanges in America. Right now, FTX is strong internationally, but its customer base in the U.S. is limited because of the restrictions on its product offering.
However, as U.S. authorities consider how best to strengthen crypto exchange regulations, there's a good chance all forms of derivatives trading will come under the microscope. Bankman-Fried believes that regulatory compliance is important and thinks crypto exchanges need to work with regulators, not against them.
Another issue is that FTT is not easy to buy in the U.S. Indeed, according to FTX's website, U.S. residents are "not permitted to transact in FTT." While it may be possible to buy FTT from a decentralized exchange, trading in tokens that are not authorized does carry additional risks.
If you are an international FTX customer, there are several benefits to owning FTT, from reduced fees to the chance to earn interest on your holdings. If you're not an FTX customer and are looking at FTT as an investment, regulatory changes are the token's biggest threat.
Even stronger controls on crypto derivatives in the U.S. and across the world could hamper FTX's plans to get a bigger foothold in the U.S. market and impact its business internationally. However, if FTX manages to work with regulators -- as the company says it wants to -- the price could grow even further.
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To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and get started on your crypto journey, today.
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Emma Newbery owns Bitcoin.