Editor’s note 8/1/2019:
New York-based LedgerX, a CFTC-regulated cryptocurrency asset management platform that offers a spot and options exchange for Bitcoin, has launched the first physically-settled Bitcoin futures contracts in the US. Anyone in the US with a valid ID who can pass know-your-customer (KYC) can trade.
The company’s new Omni platform is now live for retail traders and emails sent to the platform’s preliminary traders who signed up for the waitlist late last year are now circulating.
CEO Paul Chou tells CoinDesk,
“It’s going to make available to the retail public all sorts of ability to trade Bitcoin, whether it’s spot, futures, options and we have a lot of things in the pipeline.”
Unlike retail traders, institutional clients will use LedgerX’s other products to trade Bitcoin futures.
LedgerX’s announcement eclipses highly-publicized efforts made by Bakkt, the upcoming crypto platform from the Intercontinental Exchange, to launch the first physically-settled Bitcoin futures. Bakkt is currently facing another regulatory hurdle in New York.
LedgerX has also leapfrogged over Chicago-based ErisX, backed by TD Ameritrade, Pantera Capital and ConsenSys, among others.
ErisX was also recently granted a clearinghouse organization (DCO) license by the U.S. Commodity Futures Trading Commission (CFTC) earlier this month in the run-up to its own upcoming physically-settled Bitcoin futures product.
Says Chou of LedgerX’s new product,
“Not only are they delivered physically in the sense that our customers can get Bitcoin after the futures expires, but also they can deposit Bitcoin to trade in the first place. Cash-settled is cash-in and cash-out, we’re Bitcoin-in and Bitcoin-out.”
Bitcoin’s use as collateral for a futures contract marks a milestone for a CFTC-regulated company. It will eliminate the time needed for customers to wait for bank transfers and ACH deposits to fund their accounts.
“If you imagine somebody that deposits Bitcoin, they would not have to use the U.S. banking system at all. That’s why physically-settled is very important. I think [it’s] one of the most unique use cases for Bitcoin, where you’re using cryptocurrencies as the only collateral.”
“As a digital commodity, Bitcoin trades 24/7/365 and our customers expect that from us, so if you trade Sunday night, the banking system did not have to be open.”
Retail customers will need a $10,000 wire or 1 BTC to open an Omni account.
Chou’s push into retail involved educating the CFTC.
“We’ve been involved in this business for the last six years and we have not only been getting institutions on board but we’ve spent a lot of time educating regulators on why this is important.”
“Cryptocurrencies are for everybody and we never started this looking to offer just to hedge funds or institutional clients.”
Crypto enthusiasts have long speculated on the market impact of a CFTC-regulated, physically-settled Bitcoin futures contract. While it signals to the industry that the asset class, alongside stocks, bonds and securities, has reached a certain level of maturity by taking on characteristics of the legacy financial system, the path forward is unchartered.
Covering the emergence of the parallel financial system for Forbes, 22-year Wall Street veteran Caitlin Long writes,
“A parallel financial system is forming outside the incumbent financial system, and institutional investors are ‘financializing’ it as they enter. The new system is based on cryptocurrencies—natively-digital assets that are exclusively issued, traded and settled on open blockchains. Cryptocurrencies are not like other financial assets, so historical precedents provide little help in predicting their financialization path.”
Bitcoin is currently up 4% at $10,044.