at last! All US residents holding government-issued ID cards can now trade real bitcoins in futures contracts.
LedgerX revealed to CoinDesk that it was the first to introduce the first physical settlement of bitcoin futures contracts in the United States, defeating ErisX supported by Intercontinental Exchange (ICE) Bakkt and TD ameritrade.
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Perhaps more importantly, LedgerX offers this new product to both institutional and retail investors, allowing anyone who can process these contracts through the “Know Your Customer” (KYC) process, not just hundreds. Institutional customers of 10,000 assets.
LedgerX CEO Paul Chou told CoinDesk that retail customers can use the company's recently launched new Omni platform to trade the product, while institutional customers can trade futures like any other LedgerX product.
Although LedgerX is not the first bitcoin futures provider in the US, it is the first company to offer physical bitcoin futures in the US, which means that when the contract expires, the customer will receive the actual bitcoin they bet on. Instead of the equivalent of cash.
In addition, customers do not need to put dollars into the product. Chou explained that traders can buy contracts with bitcoin.
“These bitcoins are not only delivered in kind, our customers can not only get bitcoin after the expiration of the futures, but they can also deposit in bitcoin for trading. Cash settlement is cash in cash, we are bitcoin The currency is out."
He believes that this is the first time a regulated company can allow customers to use Bitcoin as a collateral for contracts.
He said that because of this, customers do not have to wait for bank transfers or other restrictions on the US banking system to participate.
“You can imagine that if people can save Bitcoin, they can simply not use the US banking system. That's why physical settlement is very important. I think (this) is one of the most unique use cases for Bitcoin, you can Use cryptocurrency as the sole collateral."
He said that the use of physical settlement contracts is achievable. He added:
“As a digital commodity, Bitcoin is trading 24 hours, 7 days, 365 days a day. Our customers want us to do this, so if you trade on Sunday night, the banking system may not be open.”
Open to retail investors
LedgerX revealed that the company applied for a license for Bitcoin futures to the US Commodity Futures Trading Commission (CFTC) in November 2018 and plans to introduce bitcoin futures in April this year.
Last month, the CFTC granted LedgerX a designated contract market (DCM) license, giving the platform the final approval required (the company previously obtained approval from the derivatives clearing house and swap execution tools through the CFTC).
Although the company was established in 2014, it did not begin to provide physical settlement of bitcoin derivatives until 2017. However, the company's options and swaps were originally aimed at institutional clients.
Chou said that since then, the company has been working to ensure that anyone can trade their products.
“We’ve been involved in this industry for the past six years. We’re not only getting involved, but also spending a lot of time educating regulators to understand why this is important.”
“The cryptocurrency is for everyone, and we never intended to offer cryptocurrencies only to hedge funds or institutional clients.”
John Todaro, director of research at TradeBlock, told CoinDesk that the physical settlement contract would allow traders to hedge their bets more appropriately, which could benefit non-speculative institutions.
“In addition, cash-settled futures contracts may be more susceptible to manipulation, depending on the settlement formula and the underlying spot exchange or index used for settlement.”
Often, cash-settled contracts are also cheaper than physical settlement contracts because traditional commodities have associated delivery costs. However, Todaro added that these delivery costs may disappear with the advent of digital assets.
“Given that cash contracts are simpler than physical contracts, physical contracts may be more useful to institutional clients than to retail investors.”
Competitive bitcoin futures market
Bitcoin futures have caught the attention of the United States at least since 2017, when the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (Cboe) announced that they would launch a cash-settled Bitcoin futures contract.
Although the Chicago Board Options Exchange stopped supporting its products earlier this year, the Chicago Mercantile Exchange's trading volume is still considerable.
Online stockbroker giant TD Ameritrade also offers futures contracts on the Chicago Mercantile Exchange to its clients.
However, Zhou said that LedgerX does not have to compete with cash contracts. First of all, the two contracts are "completely different."
“A lot of us have never even touched the US dollar. Cash settlement is very different from our business.”
He said that this also applies to the Omni platform. This platform "will really become a new product for retail investors, it will be unique because it will be very simple."
“We will provide retail investors with a variety of capabilities to trade Bitcoin. Whether it is stock, futures or options, we have a lot of things to prepare.”
(Unlike futures, swaps are not based on the asset itself, but on the performance of the asset, and the option is a non-binding contract.)
LedgerX's current progress is very good. In addition, many other companies plan to launch physical settlement of bitcoin futures in the United States.
Bakkt was founded last year by the Intercontinental Exchange, the parent company of the New York Stock Exchange, and has received critical acclaim. Both the company and the ErisX platform supported by TD ameritrade have announced their intention to enter the market.
Bakkt has self-certified its contract through the Commodity Futures Trading Commission (CFTC) and is currently awaiting a trust charter from the New York Financial Services Authority to set up a physical storage warehouse. Once the charter is approved, Bakkt may be launched in a few weeks.
Bakkt conducted a user acceptance test on July 22 to ensure that customers, clearing members and suppliers communicated on trial contracts.
Like LedgerX, ErisX also received the necessary approval from the CFTC, but the company has not yet announced a timetable for futures contracts. The company began offering the cryptocurrency spot trading market in April 2019.