Crypto Exchange FTX Pushes in Stocks. But who negotiates anything?

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Robinhood gets into cryptos as FTX prepares to offer stock trading.

Chris Delmas/AFP via Getty Images

The US arm of cryptocurrency exchange FTX is pushing into stocks, the latest sign that brokerages are looking for a model that would allow retail investors to trade a more diverse range of assets at a time when volumes have dropped precipitously.

FTX.US has made stock trading available in a test phase to a select group of clients from a waiting list, the company said on Thursday. Integrated with FTX’s crypto trading platform, FTX Stocks will allow users to buy and sell products like

Apple

(symbol: AAPL) and

You’re here

(TSLA) as well as exchange-traded funds and hundreds of other US securities alongside Bitcoin and Dogecoin. Fractional trading will be permitted for certain securities.

“Our goal is to provide a holistic investment service to our clients across all asset classes,” FTX.US President Brett Harrison said in a statement. “We have created a single integrated platform allowing retail investors to easily trade crypto, NFT and traditional stock offerings through a seamless and intuitive user interface.”

FTX.US said it would not receive payment for order flow – a controversial way that brokers such as

Robinhood Markets

(HOOD) subsidize free trade by routing orders through third-party trading firms instead of exchanges. Sam Bankman-Fried, co-founder and chief executive of FTX, has taken a 7.6% stake in Robinhood, according to regulatory filings earlier this month.

“There is a clear market demand for a new retail investing experience that provides full order routing transparency to customers and does not rely on order flow payment,” Harrison said.

FTX.US bucks the trend of traditional financial brokers turning to cryptocurrencies. Robinhood rolled out crypto trading to over two million users in April, and

Interactive brokers

(IBKR) is making a similar breakthrough in the world of digital assets.

Instead, with FTX, a crypto-native company is branching out into traditional finance. This is not the first time: FTX took a stake in IEX Group, the operator of a regulated stock exchange in the United States, last month.

The convergence of traditional and crypto-native financial firms on trading platforms that allow users to buy and sell both stocks and digital assets comes as trading volumes, both in stocks and in cryptos, have plunged.

Amid the massive sell-off in markets in 2022, retail traders appear to be staying put. The S&P 500 has fallen almost 19% so far this year, while the price of Bitcoin is down almost 40%.

This has resulted in problems for brokers. Robinhood announced plans to cut 9% of its staff amid a slowdown revealed in its quarterly results last month. Management reported a 10% drop in the number of monthly active users on an annual basis. Robinhood stock is down 44% this year.

It’s been even worse in the crypto world, where the major exchange

Coinbase Global

(COIN) posted a loss of $1.98 per share in the first quarter, well below the 1 cent loss expected by Wall Street. Coinbase’s trading volumes fell to $309 billion in the first quarter of the year, down 8% from a year earlier and 44% below levels in the last period of 2021. Coinbase stock has fallen 73% so far in 2022.

And there’s reason to believe things could get worse for Coinbase — and potentially others in the crypto world — as digital asset prices continue to fall. Coinbase did not immediately respond to a request for comment from Barrons whether the company was considering expanding into equity trading.

Analysts led by Dan Dolev at

Mizuho

Securities wrote in a note Thursday that they estimate, after investigation, that the average Bitcoin holder cost base is $21,000; the largest digital asset was changing hands around $30,000 on Thursday.

“If true, that means the closer Bitcoin gets to these levels, the closer the average investor gets to breaking even,” the analysts wrote. “What is the tipping point that could prompt investors to liquidate Bitcoin?” Their investigation suggested the figure to be around $9,000.

Large-scale, large-scale Bitcoin sales could see a wave of retail traders leaving Coinbase’s platform, hurting the business. But a note of optimism, Dolev noted, was that nearly 50% of respondents said they had no intention of selling Bitcoin at any level.

Mizuho rates Coinbase at Neutral with a price target of $60. Late Thursday afternoon, the stock was a little below $67.

Corrections & Amplifications: FTX took a stake in IEX Group, the operator of a stock exchange, last month. An earlier version of this article incorrectly identified IEX Group as an exchange.

Write to Jack Denton at [email protected]

Garland K. Long