Cryptocurrency: 'We're in an inflection point with regulation,' FTX US president says

FTX US President Brett Harrison joins Yahoo Finance Live's Zack Guzman to discuss the cryptocurrency trading volume surge the exchange platform has seen and the competition it sees with other digital traders.

Video transcript

ZACK GUZMAN: Well, you might not need to know anything about crypto to know the next company we're going to be chatting about. And that's because FTX has been on a bit of a spending spree here in 2021, with partnerships including everyone from the MLB to get patches on umpires during the season, as well as Tom Brady and Steph Curry and the Miami Heat arena and UC Berkeley's arena. There's a lot of stuff. That's only half the list too, I think.

But all of that spend in terms of sponsorships and the like has now reeled in some pretty serious growth in terms of the US operation. Of course, we've talked to Sam Bankman-Fried about FTX before. But FTX US posting some interesting numbers for Q3, seeing a surge of more than 500% in average daily volume for Q3 and adds of more than 52% in terms of users in the third quarter as well.

And for more on all of that, very happy to welcome in the president of FTX US in a Yahoo Finance exclusive here. Brett Harrison joins us now. And Brett, good to be chatting with you today. I think the first time we've had you on here. And with good reason, some of these numbers are pointing to some pretty serious growth. So I mean, is that all stemming from maybe the marketing push? Or are you seeing just a lot more people coming into crypto right now?

BRETT HARRISON: Yeah. First, thanks for having me on the show today, Zack.

I think it's a mix of a number of different factors. It's hard to pinpoint exactly which one is driving the most of the growth. First, of course, our advertising efforts, our marketing efforts, partnering with these huge institutions like Major League Baseball, putting our name on the Miami Heat arena, this is obviously helping to get our name out there to build brand awareness for FTX.

We're only one-year-old company. Around a year ago, we were doing around a million dollars a day in spot crypto volume. Now we're doing around 400 million a day in spot crypto volume. And that, I'm sure, has something to do with that marketing. But it also has to do with our approach to the product, constantly making changes to make the user onboarding easier, to make the compliance process better and more robust, to improve security for our users, and of course, all of our different forays into new types of assets.

For example, on one hand, NFTs, on the other side, derivatives with our acquisition of Ledger X. So we're trying to sort of fire on all fronts here

ZACK GUZMAN: Yeah. And I mean, the reason to spend is obvious, I think, if you think about how long the runway can be if you're a firm crypto believer. Sam's talked a lot about catching up to Coinbase. They've also been leaning into NFTs. And I'd be curious to know more about how that's gone as you guys have activated support for NFTs at FTX US.

I mean, has that maybe brought in-- we know that there's been a lot of activity and a lot of price run-ups in the NFT space. Has that brought on new customers that hadn't touched crypto before? Or are you seeing mostly crypto-native users shift over into NFTs too?

BRETT HARRISON: I think it's a combination of both. We're definitely seeing surges of new user signups into FTX US when we announced our FTX platform for NFTs, especially around being able to deposit, withdraw, and trade Solana-based NFTs. But we're also seeing-- people are interested in NFTs because, as a way to get into crypto, it's a pretty relatable thing.

Maybe you don't know exactly what Ethereum is or smart contracts, but you might understand the idea of a collectible piece of art or a community that you can be involved with to talk about your collections and these kinds of investments. And so we think that people are going to be entering the crypto space through this avenue, not just through things like buying and selling Bitcoin and Ether.

ZACK GUZMAN: The other interesting thing too-- I mean, we talked about acquisitions. Obviously, FTX has raised a lot of money here. But acquiring Ledger X, the first to hit the derivative space, you've now rebranded to FTX US Derivatives. I mean, what does that unlock for the average crypto user looking to access derivatives? I mean, we've talked a lot about Bitcoin-linked futures and the ETFs. We've talked about spot. I mean, where do derivatives fit in?

BRETT HARRISON: Sure. So this is probably the avenue for FTX US that we are most excited about. So not a lot of people know that most of the volume in crypto trades through derivatives globally, not through the spot market. But more than 90% of that volume trades offshore, not in the US. And that's because in the US, you need to have certain licenses to be able to offer derivatives, to be a derivatives exchange or clearinghouse.

And Ledger X has the DCM license, the designated contract market license, and also the DCO, the derivatives clearing organization license, that lets them both clear and trade derivatives products. And so through that license, we're going to be able to offer futures on crypto as well as options on crypto to retail and institutional customers. But not just that.

Their license is very broad. It's not just specific to crypto. So there's no reason why, after conquering crypto derivatives, we can't move on to other kinds of futures, for example broad-based equity index futures. And so what we want to do is bring more competition to the space of derivatives in the US, where there's already such demand for liquidity.

ZACK GUZMAN: Yeah, you mentioned it I mean, it's obviously a tighter regulatory environment than a lot of others around the world. And I think that's partially the reason why you guys have the US arm and the rest of what FTX does abroad.

That includes an interesting thing that we've seen pop up in the crypto space, which is tokens corresponding to US securities, tokens that can correlate with Tesla shares, for example, McDonald's shares, whatever you want. And the SEC has pursued not FTX, some other people working in that space to ask a little bit more questions around it.

But I suppose that does kind of hamstring what you can offer to consumers. You guys went the regulatory route around derivatives. But what does it say maybe about what the future looks like in offering everything else FTX does? What's the timeline there in terms of what you'd want to do here in the US?

BRETT HARRISON: Yeah, so look, there are large error bars on the time frame for offering some of the products, especially the derivative products. They involve approvals and ongoing conversations with the CFTC, which we're very deeply involved in now. So it could be, in the coming year, we might be able to offer a considerable amount of the derivative products that we're offering overseas right now.

But when you think about the other kinds of products that could exist, we're at an inflection point right now with regulation where the SEC, the CFTC, lawmakers in Washington, we'd like to really get a handle on how to federally regulate crypto exchanges in a way that provides safe, regulated, compliant marketplaces for people to trade these assets, so that places like large institutions or ETF funds that want to be able to hold spot crypto can do so in a way where they feel safe and assured about it.

And I think when we establish those ground rules, I think that will open up the paths for future innovations. I think that a tokenized stock, for example, is certainly a possibility in the US. It has a lot of analogs to other derivatives like American depository receipts or other ETFs. And I think that it's hopefully a matter of time before a company like ourselves, by working together and directly, walking through the front door with a regulator like the SEC, can work with them to help create some of these products, which there's clearly demand for globally.

ZACK GUZMAN: Lastly, just to wrap up here, Brett, when we talk about what has you excited-- I know you're excited about derivatives. When you look at other things that can be listed, it's pretty wild to just see kind of the pops and excitement that comes with-- I guess Shiba is the latest example of something that just gets listed, and the community's all about it.

I mean, is there one specifically that you're kind of looking forward to or something that you're seeing that just kind of points to this enthusiasm building here as we wrap up 2021? It's been a wild year. What you're excited about and maybe adding for the FTX US user base?

BRETT HARRISON: Yeah, we won't speculate right now exactly on which tokens that we'll end up adding to the exchange. But I will say that there's so much excitement right now in the crypto space. And the blockchain technology in general has such broad applications, whether that be in the transfer of payments, of course, but also in places like gaming and other kinds of online experiences.

And I think through FTX US as a white label partner to many of these companies that want to be able to work with an existing crypto services provider to help bring on users, to perform KYC and AML checks, to help do fiat onramps and offramps, that we can help enable some of these innovations in this particular space.

ZACK GUZMAN: Brett Harrison, FTX US president joining us there. Appreciate again the time here. Got to come back as you roll all these things out. A lot going on. Thanks again.

BRETT HARRISON: Will do.