FalconX's Acquisition of 21shares
Deal Overview
Acquirer: FalconX
Target: 21shares
Total Transaction Size: Undisclosed
Closed Date: 20 November 2025
FalconX’s acquisition of 21shares was announced as a strategic step towards fusing traditional listed markets with digital-asset infrastructure. FalconX has been pushing beyond market-making and prime-brokerage services to break into asset management and market infrastructure. The firms plan to launch crypto funds ‘built around derivatives and structured products’, according to the Wall Street Journal, and as such, clients can expect investment funds relying on more sophisticated financial instruments, as opposed to being limited to simpler “buy-and-hold” crypto funds.
As a prime brokerage strategically acquiring a crypto ETP issuer (rather than merging with a direct competitor), FalconX’s vertical integration with 21shares expands the acquirer’s capabilities and reduces potentially inconsistent reliance on third-party issuers. Raghu Yarlagadda, co-founder of FalconX, demonstrated immense confidence in 21shares’ capabilities to extend, noting the ETP-provider has built “one of the most trusted and innovative product platforms in digital assets.” Integrating listed markets into FalconX’s institutional infrastructure is expected to boost its market efficiency and generate lasting enterprise value throughout market cycles.
It is key to note that 21shares will continue to operate independently as a subsidiary under the FalconX group. As an already established issuer with significant brand equity and longstanding operational relationships, preserving 21shares as a separate entity most effectively serves its strategic interests, as doing so safeguards client confidence, ensures cohesion of operations, and minimises the potential for insolvency contagion by precluding shared risk and guarantees; minimal disruptions to their ongoing activity is expected. This tends to keep disclosure obligations with the entity that originally issued the products (i.e. the 21shares legal entity) rather than automatically transferring them onto FalconX directly.
Company Details: Acquirer – FalconX
Founded in May 2018 and based in San Meto, California, FalconX is a digital asset prime brokerage providing financial expertise to top global institutions through 24/7 access to liquidity and capital solutions, enabled by proprietary technology built to manage risk across volatile markets. Since its inception, the company’s trading volume has amassed to over USD 2 trillion for more than 2,000 institutional clients, setting its value at $8 billion. Having established footholds with offices across the US, APAC and Europe, FalconX continues to rapidly expand their team (currently comprising 350+ employees globally).
Claiming the top spot in institutional options throughput and broad token coverage, FalconX boasts a comprehensive range of financial services, with holistic expertise ensuring seamless integration of solutions for clients. It notoriously acted as a partner in the launch of a foundational U.S. spot bitcoin ETF, alongside Cathie Wood’s ARK Investment Management.
Company Details: Target – 21shares
Similarly founded in 2018, headquartered in Zurich, Switzerland, 21shares offers the largest suite of cryptocurrency exchange traded products (ETPs) outside the United States. Conceived by co-founders with the mission of "improving crypto access”, the company seeks to bridge traditional finance and digital-asset investing through the institutionalising of the cryptocurrency industry, pursuing the large-scale integration of digital assets into the traditional global financial system by major financial institutions (such as banks, asset managers, and broker-dealers).
As part of their mission to facilitate cryptocurrency accessibility to investors, thus bridging the gap between traditional finance and decentralised finance, 21shares listed the first ever physically-backed crypto ETP in 2018. Supported by a specialised research team, proprietary technology, and comprehensive capital markets expertise, the company focuses on delivering innovative, transparent and cost-effective investment solutions.
Innovation Zurich, in 2022, listed 21shares as Switzerland’s largest crypto unicorn, already having reached a valuation of approximately $2 billion. However, by September 30 2025, 21shares has managed over $11 billion in assets across 55 listed products. $3-5 billion of this sits within the ARK 21shares Bitcoin ETF (ARKB), a pioneering U.S. spot bitcoin ETF launched in January 2024. Moreover,
Legal and Regulatory Implications
FalconX’s acquisition of 21shares represents more than a conventional scale-driven expansion in crypto finance, instead constituting a structural transformation that situates the firm within a markedly more complex and interdependent regulatory, legal, and risk architecture. Given the recency of the deal’s closing, we may only speculate how the legal and regulatory implications will manifest. The transaction underscores various interrelated implications and considerations that regulators, institutional investors, and counterparties will scrutinise closely.
Firstly, 21shares would be expected to represent that it maintains compliance with anti-money laundering (AML) and know-your-customer (KYC) compliance frameworks. These representations are reinforced by covenants designed to preserve compliance. In United States vs Hayes et al [2022], the American Department of Justice found that the defendant, Arthur Hayes, co-founder and former CEO of the cryptocurrency exchange BitMEX, was guilty of “willfully failing to establish, implement, and maintain an anti-money laundering program at BitMEX.” Hayes agreed to pay a fine of USD10 million to represent his pecuniary gain from the offence. What transpired in Hayes, including money laundering activity, demonstrates the importance of maintaining robust AML programs and ensuring proper oversight in transactions, as a part of necessary KYC information. For FalconX and 21shares, this serves as a cautionary reminder that implementing and maintaining adequate AML/KYC protocols, screening, and accurate custody records will be imperative, moving forward. This case is therefore essential for informing regulatory expectations in such transactions.
Secondly, the deal expands FalconX’s regulated activities, including cross-border regulatory arbitrage risk between U.S. crypto ETFs and European crypto ETPs, and FalconX’s assumption of regulated roles in securities markets (e.g. fund registration). Asset managers and prime brokers typically face distinct regulatory regimes; maintaining legal separation allows tailors compliance programmes optimised for their relevant regulatory obligations. While both ETFs and ETPs offer similar exposure, they sit within materially different legal and supervisory frameworks. Owing to such differences in regulatory standards, FalconX’s regulatory responsibilities have expanded.
Thirdly, in expanding their repertoire of affiliated entities, it is imperative that FalconX internalise the lessons following the catastrophe of FTX in November 2022, particularly as they concern the heightened regulatory emphasis on segregating client assets (see: United States of America v. Samuel Bankman-Fried [2023]). It was not merely a governance lapse, but a structural breakdown in which customer assets were never truly bankruptcy-remote, despite assurances to customers. When FTX entered bankruptcy, the absence of clear segregation and bankruptcy-remote custody left customers as unsecured creditors rather than beneficiaries of protected trust assets. The post-FTX era demands similar companies to implement a clear custodial trust structure (or any qualified custody arrangement) to ensure these assets do not unjustifiably form the bankruptcy estate. 21shares would be required to represent and warrant that all digital assets underlying its ETPs/ETFs are held with appropriately qualified custodians, client or fund assets are segregated from the assets of FalconX, its affiliates, and any custodians’ proprietary accounts, and that no undisclosed rehypothecation, lending, or encumbrance of fund assets exists outside what is explicitly disclosed in offering documents. While not a transaction case, this prosecution reshaped regulatory expectations surrounding governance and disclosure.
Finally, the transaction represents a fundamental shift, a clear expansion of FalconX’s regulatory perimeter, effectively repositioning FalconX as an asset manager rather than merely a market intermediary. Ownership of a large, established ETP and ETF issuer brings FalconX squarely within the ambit of global asset-management regulation, with profound expectations around fiduciary duty, governance, compliance infrastructure, and supervisory engagement= FalconX’s historical identity as a crypto prime broker, focused on liquidity, execution, and financing, now sits alongside responsibilities traditionally associated with long-established investment firms. The blurring of brokerage, market-making, and asset-management functions may be attractive, presenting far-reaching possibilities for commercial growth, but it invites closer regulatory scrutiny and increases the likelihood that supervisors will demand clearer separation of roles, enhanced capital buffers, or more intrusive oversight.
Taken together, these implications suggest that FalconX’s acquisition of 21shares is less about incremental growth and more about institutional transformation. It embeds the firm deeper into regulated capital markets, amplifies cross-jurisdictional risk, and subjects its business model to a post-FTX regulatory environment that is increasingly intolerant of opacity, blurred boundaries, and regulatory arbitrage.
Conclusion
The acquisition of 21shares by FalconX reflects a deepening institutionalisation of the digital asset sector, as crypto-native firms increasingly adopt the legal and organisational forms of traditional finance. From a legal perspective, the resulting crypto fund structures may appear familiar to regulators, borrowing heavily from established frameworks governing ETFs, custody, and asset management. Yet the convergence of these forms with crypto-specific market functions introduces a distinct legal complexity that existing regulatory regimes were not designed to fully accommodate.
Crucially, this transaction highlights an emerging legal inflection point in crypto finance. By combining prime brokerage, liquidity provision, and regulated product issuance within a single corporate group, the deal places pressure on foundational legal concepts such as asset segregation, conflict management, and regulatory perimeter design. As similar transactions follow, they will precipitate new navigational challenges for firms and regulators, particularly across multiple jurisdictions. In this sense, the FalconX/21shares acquisition is not merely an instance of regulatory adaptation, but a catalyst for the development of a more explicit legal framework governing the structure and limits of institutional crypto market participants. Future crypto M&A of this nature is therefore likely to attract far greater emphasis on structural remedies – such as ring-fenced custodial entities, independent governance, and restrictions on intra-group asset flows, rather than reliance on mere behavioural assurances.
References
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