Remember FTX? The European branch of the once-popular cryptocurrency exchange that became the center of a major scandal in 2022 has just been acquired. Backpack has become the new owner of FTX EU.

Although Backpack currently ranks only 200th in CoinMarketCap's cryptocurrency exchange rankings by daily trading volume, it hopes to expand its operations through the acquisition of this MiFID II-regulated entity. However, this move might not happen as quickly as anticipated.

Backpack Acquires Defunct FTX EU for MiFID II License

Since September 2022, FTX EU has held a Cyprus Securities and Exchange Commission (CySEC) license, allowing it to passport its services throughout the European Union under MiFID II regulations.

According to a press release from Backpack, the acquisition has received approval from both the bankruptcy court and CySEC. The exchange has ambitious plans, including introducing crypto derivatives and perpetual futures to the European market, which are currently unavailable through regulated exchanges locally.

“As many international exchanges exit the European Union, becoming a MiFID II-licensed entity demonstrates our dedication to meeting the highest regulatory standards and is a significant step to bringing transparent, secure, and regulated crypto trading to an underserved European market,” commented Armani Ferrante, CEO of Backpack Exchange.

However, the challenge lies in CySEC's suspension of FTX's license following its collapse, with the suspension being regularly renewed. The most recent extension of the Cyprus Investment Firm (CIF) license suspension was issued on November 5.

While the company claims that license reactivation is underway and plans to launch Backpack EU in Q1 2025, official CySEC documents indicate the suspension will last until May 30, 2025, extending into Q2.

During this period, the company cannot provide any investment services or accept new clients. The regulator only permits the return of funds to clients affected by the exchange's collapse.

Moreover, Backpack assumes responsibility for settling FTX bankruptcy claims from previous platform clients.

“Customer restitution is a crucial step to rebuild trust and confidence in the industry, and Backpack is committed to returning FTX EU customers' funds as fast and as safely as possible,” added Ferrante.

Although not among the largest platforms, Backpack secured $17 million in a Series A funding round earlier this year, reaching a total valuation of $120 million. Moreover, it succeeded in completing an acquisition that reportedly attracted interest from a much larger player, Coinbase, in late 2023.

History of FTX's Collapse

The FTX cryptocurrency exchange's dramatic collapse unfolded over ten days in November 2022, triggered by a CoinDesk report revealing questionable financial practices. The investigation exposed that Alameda Research, FTX's sister trading firm, held a significant portion of its assets in FTT, FTX's own exchange token.

The revelation of Alameda's holdings sparked a crisis of confidence, leading to:

• A mass exodus of customer funds
• An $8 billion shortfall in accounts
• Blocking of customer withdrawals on November 8, 2022
• Chapter 11 bankruptcy filing on November 11, 2022

Sam Bankman-Fried, FTX's founder, was convicted and sentenced to 25 years in prison for misappropriating $8 billion in customer deposits. John J. Ray III, known for managing Enron's bankruptcy, took over as CEO and discovered what he described as “a complete failure of corporate controls.”

FTX announced in January 2024 that it would not restart operations but instead liquidate assets to repay customers. The reorganization plan approved in October 2024 will provide 98% of creditors with 119% of their allowed claims from November 2022.

Prior to its collapse, FTX had established FTX Europe in March 2022, securing initial approval from CySEC and the full CIF license in September.