There’s money to be made in cryptocurrencies. And much of it is going to trading exchanges. Coinbase rode the crypto run last year to generate revenues of $7.8 billion, a surge of 550% from 2020 figures.

As it turns out, rival FTX did not do too badly either. According to a recent CNBC report, FTX grew its revenue from $89 million in 2020 to $1.02 billion the following year. While cryptocurrency trading is mainly marketed as a retail phenomenon, FTX shows another side to it. Two-thirds of its total revenue came from its derivatives trading business and retail investors accounted for only 16% of the total figure. It also had notable profit margins of 27% last year.

But those margins are not as impressive as those reported by Coinbase during the pandemic. But while North America’s biggest crypto exchange by trading volume has suffered heavy losses in the crypto winter, FTX revenue targets for the coming year remain fairly unchanged at $1.1 billion.

FTX’s Remarkable Ascent

One of the remarkable things about FTX’s financials is the speed with which it has shot into public consciousness. Its ascent from out of nowhere to become a poster child for crypto is almost unbelievable. FTX’s shorts-clad CEO Sam Bankman-Fried is the subject of glowing profiles and is everywhere – interviews, conferences, and [suited-up] at lawmaker hearings. Remember, this is a company that is barely 2.5 years old and was relatively unknown until the pandemic.

But that doesn’t seem to matter to investors in FTX. They valued it at $32 billion in private markets. What’s more, within this short span of time, it seems to have generated $388 million in profits and has $2.5 billion in cash on hand, based on CNBC’s reporting. Where does it generate profits? Certainly not the US because its main source of revenues – derivatives trading – is not offered to US investors.

Either way, it is putting its cash to use in acquisitions and making itself better known to the public.  The Bahamas-based exchange has a hand in notable crypto ventures, including stablecoin and payment infrastructure company Circle, custodian Genesis Digital Assets, and videogame company Sky Mavis.

The company also ramped up its advertising spend to 15% of overall revenue last year and snapped up naming rights to Miami’s NBA arena. This was in addition to producing ads featuring NFL legend Tom Brady, also an equity investor in the company, and comedian Larry David. But all that heavy spend does not seem to have made much difference: the United States region still accounted for less than 5% of FTX’s 2021 revenue, CNBC writes.

FTX’s Future Growth    

It is unlikely that the United States will feature significantly in FTX’s financials in the coming year. There are a couple of reasons for this. The first one is the current slump in crypto markets. Investors and traders in cryptocurrencies multiplied during the pandemic’s crypto bull run. The current bear market has prompted an exit. They are also liquidating their futures positions, many of them at FTX, at a rapid pace. Trading volumes and, consequently, fee revenues are down.  

The more important reason, however, is uncertainty around crypto regulation. In the world’s biggest derivatives market, two federal agencies are engaged in a pitched battle to regulate crypto. While Congress has drafted legislation to regulate crypto, chances that it will pass this year or next are remote.

FTX is helping craft that legislation. Sam Bankman-Fried, or SBF as he is popularly known, has made Congressional and Senate appearances to plug his case for derivatives regulation. Until that regulation is firmed up, however, FTX will be deprived of its most lucrative revenue source – derivatives trading.

In the interim, the exchange has moved its business gaze beyond the United States. The CNBC post states the company owns 15 subsidiaries, in countries like Antigua and Cyprus, across the world. In addition to providing a ready cache of users who can be migrated onto its platform, the subsidiaries are also regulatory workarounds for FTX because they may already have the necessary licenses for operations.

Within the United States, it may have its hands on one of the biggest crypto lending platforms in the market. According to latest reports, SBF could buy BlockFi – a crypto lending platform that SBF ‘rescued’ with a loan – for as cheap as $15 million. The other end of that range is $240 million, which is still peanuts for FTX considering the amount of cash they have on their books.

SEC chief Gary Gensler referenced its interest-bearing accounts as a security in a recent op-ed in the Wall Street Journal. “We can dispense with the idea that crypto lending isn’t subject to regulation,” he wrote. Even after it is regulated, BlockFi could turn out to be a profitable proposition for FTX.