Better-known for its crypto derivatives trading business, Cboe on Thursday moved to shut down its spot trading lines.
The Cboe will focus now on its thriving crypto derivatives trading business.
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Posted April 25, 2024 at 4:44 pm EST.
Exchange operator Cboe is shutting down its spot crypto trading business, telling institutional clients in a note on Thursday that “regulatory uncertainty and headwinds in the US” played a role in the decision.
Exchange representatives said in a statement that the plan is to wind down the spot trading division, Cboe Digital Spot Market, by the third quarter. For Cboe, the shutdown marks the end of a relatively short-lived foray into spot trading — a competitive field dominated by crypto-native exchanges such as Coinbase and Binance.
The client note, from Cboe Digital President John Palmer and Global President Dave Howson of Cboe Global Markets, called the reshuffling a “strategic decision.”
“We continue to believe in the transformative potential of digital assets to move into the mainstream and drive innovation, efficiency and transparency in the capital markets … we determined the most effective way to support institutional adoption of digital assets is to focus our efforts on where we already excel – expertise in derivatives, technology and product innovation,” the note, obtained by Unchained, said.
A spokesperson for Cboe declined to comment further.
Cutting Costs
The company said the spot division closure would cut costs by $2 million to $4 million this year, with annualized savings projected to fall between $11 million and $15 million. With a $19.2 billion market capitalization toward the end of Thursday’s trading session, Cboe’s savings with this move aren’t material to the exchange — and the amounts reflect the fact that its spot business remained small.
“Probably tough for them to compete in spot,” said one institutional crypto trading source. “Imagine most of their flow is in derivatives.”
Cboe’s move into spot trading began in 2021, when the Chicago-headquartered exchange agreed to acquire crypto spot and derivatives exchange ErisX amidst a bull market in digital assets. The purchase, for an undisclosed amount, marked Cboe’s entrance into facilitating spot crypto trading and futures offerings, with the latter permissible under ErisX’s CFTC registration.
Cboe went on to build a bustling crypto derivatives business, including gaining regulatory approval to launch the first leveraged BTC and ETH derivatives in the U.S. But its spot business never really got going. It was heavily hampered by the market’s downturn in 2022, leading to anemic trading volumes. In July of that year, Cboe wrote down its ErisX purchase by $460 million, leading to a net loss per share for the quarter.
The pending closure coincides with a broader restructuring of the company’s crypto business. Once housed under their own umbrella as Cboe Digital, Cboe’s cash-settled bitcoin (BTC) and ether (ETH) derivatives are set to become part of the entity housing all of the exchange’s derivatives, the Cboe Futures Exchange (CFE), pending regulatory review.
That undertaking is penciled in to be complete sometime in the first half of 2025, according to the note.
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