21shares Takes a Leap into the Mainstream with FalconX Acquisition
21shares has spent years cultivating its cryptocurrency business away from the traditional finance sector. Operating out of Zurich, the company introduced exchange-traded products (ETPs) that allowed European investors to access Bitcoin and Ether long before similar offerings were permitted in the United States. With its recent acquisition by FalconX, a crypto prime brokerage supported by Tiger Global and Singapore’s GIC, 21shares is sacrificing some of its independence in exchange for greater scale as the cryptocurrency market increasingly integrates with mainstream finance. This merger highlights a significant trend where cryptocurrency specialists are beginning to penetrate conventional investment channels through regulated financial products. The partnership between FalconX and 21shares is part of a larger movement, with crypto mergers and acquisitions exceeding $10 billion for the first time in the third quarter, reflecting a more than 30-fold increase compared to the previous year, according to Architect Partners.
The Shift in Regulatory Landscape and Strategic Moves
Historically, the cryptocurrency sector struggled with mergers and acquisitions, particularly as it worked to recover from the market downturn in 2022, compounded by regulatory scrutiny. However, the political landscape has shifted dramatically since Donald Trump’s return to the White House, transforming the Securities and Exchange Commission from a perceived adversary to a potential ally for the industry. This change has sparked a surge in deals, altering the strategic considerations for firms like 21shares. With regulatory barriers easing, established Wall Street firms are now entering the cryptocurrency space, pushing existing companies to strengthen their competitive advantages. “The regulatory environment has finally allowed this to happen at an accelerated pace,” stated Russell Barlow, CEO of 21shares, in a recent interview, although he refrained from disclosing the specifics of the deal. He noted that their future plans have now been significantly expedited, allowing them to achieve what was previously a five-year timeline in just two to three years.
Increased Competition in the U.S. Market
For much of the past decade, 21shares carved out a niche in the European market while U.S. regulators maintained a ban on spot-crypto ETFs. However, this changed in early 2024 when the SEC, under President Joe Biden, lifted such restrictions. Consequently, 21shares now faces intensified competition in a rapidly expanding marketplace. This acceleration in regulatory clarity brings both opportunities and challenges; while it facilitates new partnerships and products, it also attracts increased competition. Major financial institutions like BlackRock and Fidelity have launched low-cost Bitcoin and Ether ETFs that have garnered billions in investments, collectively managing over $173 billion in assets, dwarfing 21shares’s total of $11 billion across more than 50 products. As the cryptocurrency sector converges with mainstream finance, firms such as FalconX and 21shares are compelled to innovate relentlessly to maintain their competitive edge, according to Nate Geraci of NovaDius Wealth Management. “We are witnessing a gold rush in the realm of crypto ETPs,” he remarked. “With new listing regulations in effect, we are poised for an influx of opportunities—making this an optimal moment for strategic alliances like this.”
FalconX Expands Its Horizons
Founded in 2018 and valued at $8 billion during a 2022 funding round, FalconX recently acquired Arbelos Markets, a trading firm specializing in crypto derivatives. This acquisition has broadened FalconX’s capabilities to include not only trading and financing but also product development. Despite merging with FalconX, 21shares plans to retain its workforce of 100 employees and will continue to operate independently. The company aims to launch 18 new funds in the United States this year and expand its presence into the Middle East and Asia. FalconX and 21shares are collaborating to create strategies that integrate digital assets into traditional financial markets, including tokenized bonds and equities, by leveraging blockchain technology for trade settlements, according to Barlow. The partnership between FalconX and 21shares is part of a larger trend of billion-dollar investments reshaping the cryptocurrency landscape, extending beyond ETPs and prime brokerage.
Consolidation Trends in the Crypto Industry
This year has seen several high-value transactions in the cryptocurrency sector, including Coinbase Global Inc.’s acquisition of the derivatives platform Deribit for $2.9 billion in May and Ripple’s investment of over $2 billion to acquire both prime broker Hidden Road and corporate treasury firm GTreasury. Notably, bidders from outside the cryptocurrency sector are also expressing interest; for instance, CoreWeave Inc. made a $9 billion bid for Bitcoin miner and data center operator Core Scientific Inc. in July. “The ongoing consolidation within the cryptocurrency space is prompting companies to integrate their services vertically,” explained Karl-Martin Ahrend, cofounder of the digital asset investment bank Areta. “Market makers, custodians, and infrastructure providers are increasingly aligning with end investors as ETFs and regulatory changes create new avenues for institutional investment.”
Challenges Ahead for Crypto Firms
Some leading cryptocurrency companies have already begun to capitalize on the renewed market enthusiasm by going public to raise cash and enhance their acquisition capabilities. Circle Internet Group Inc., which issues the second-largest stablecoin, raised $1.1 billion in June, and exchange operator Gemini Space Station Inc. secured $425 million in September. The pressing question is whether this wave of acquisitions will be sufficient to fend off traditional financial institutions like Goldman Sachs and Citigroup, as well as payment companies such as Stripe and Revolut, as they look to leverage clearer regulations and growing demand for digital asset products. While traditional finance holds advantages in scale and distribution, cryptocurrency firms boast agility and technical expertise. The window of opportunity for these advantages may be limited, making consolidation a strategic necessity for survival in this evolving landscape.
