The Commodity Futures Trading Commission (CFTC) has cleared bitcoin derivatives provider LedgerX to trade bitcoin futures that are settled in the digital currency, a move supporters hope will be a step forward in building a derivatives market for the volatile asset.
Until now bitcoin futures have been settled in cash, such as US dollars. Physically-settled contracts mean customers will be paid in cryptocurrency when the contract expires, in the same way that buyers of oil or foodstuffs take physical delivery of the product. DRW, a high-frequency trading group that has been active in the crypto market, has argued that exchanges should list physically delivered contracts, because it was “inherently flawed” to use cash markets or other related auctions to finalise prices.
The CFTC said Tuesday it had approved LedgerX’s application for a designated contract market (DCM) license, meaning the company can now offer the new futures contracts.
The US cryptocurrency exchange, headquartered in New York, is one of a cluster of companies seeking clearance from the Commodity Futures Trading Commission to trade physically-settled futures and swaps contracts in bitcoin. CFTC approval means LedgerX can offer institutional and retail investors futures, options and swaps to retail investors in both the US and Singapore. Unlike the cash-settled bitcoin futures listed by the Chicago exchanges Cboe and CME, in physically settled futures the buyer receives the underlying commodity when a contract expires, rather than the fiat equivalent.
The move has raised hopes that rivals like Bakkt, a custodian for digital assets supported by Intercontinental Exchange, as well as ErisX and SeedCX will also soon receive the green light. LedgerX applied for the DCM in November 2018 and has since been working with the CFTC. It already offers swaps and options contracts for customers. They have grown frustrated at the lengthy application process, while big Chicago exchanges CME Group and Cboe Global Markets have been able to try to build market share in the past 18 months. But ICE told customers two weeks ago they could begin testing trading and taking delivery of Bakkt bitcoin futures from late July.
No timeline was provided for when LedgerX might start to offer futures. but chief operating and risk officer Juthica Chou told CoinDesk that the company was looking to be the first provider of this product in the U.S.
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