Cryptocurrency Derivatives Series: Physically-Settled Bitcoin Futures Trending Topic, VanEck, Bakkt, LedgerX and ErisX Line-up For Offering

This week derivatives exchanges LedgerX and ErisX were given the green light to offer physically-settled bitcoin futures contracts, beating VanEck and Bakkt to market.

Both of them have been the renowned firms in the race to offer regulated physically-backed Bitcoin investment products. 

We’ve reported that VanEck claims their Bitcoin ETF related issues have been resolved. 

The SEC and quite a few representatives from CBOE Global Markets, VanEck, and SolidX summoned for detailed discussions regarding Bitcoin exchange-traded funds (ETFs). The US financial regulator came up with a memorandum of the event a fortnight to clarify public with some insight on this closed-door meeting.

But they were pipped to the post by LedgerX and ErisX, with both exchanges gaining the designated contract market licenses from the Commodities Futures Trading Commission (CFTC). They now have the green light to offer physically-settled bitcoin futures contracts.

The properties of physically-settled futures contracts will enable clients to be settled in actual bitcoins on the expiration, putting them in the same category as traditional futures on products such as oil and corn that are settled with physical delivery.

The much-awaited Bakkt’s platform for bitcoin futures contracts with the physical delivery facility appears to be ready to go. Yes, it is finally all set to unveil on this July 22nd. As Bakkt COO Adam White pointed out a conference earlier this year, his thesis is that the "future of retail flow will not come from active daytraders", which the Coinbases of the world have already done a pretty good job of attracting, "but from the actual utility and application of crypto."

The US-regulated exchange and clearinghouse LedgerX, with former CFTC commissioner Mark Wetjen on its board of directors, was the first to gain approval and is expected to offer both physically-settled options and futures in bitcoin. Despite the exchange's established presence serving institutional traders, these new products are to be aimed primarily at retail as part of a platform called Omni.

ErisX, headed by a group of Wall Street veterans and crypto pioneers with the backing of US broker TD Ameritrade, was given the go-ahead for its futures contract several days later. It is more focused on the institutional market.

The institutional market-leader CME has recently claimed record trading volumes, reporting a fresh high of $1.7B in notional value traded on June 26, with average daily open interest (the number of open contracts) growing by 794 percent since December 2017.

This is confirmed by a recent Diar report, which notes that bitcoin derivatives have become crypto's ‘new thing’. The report notes volume is particularly strong during the working week, suggesting their popularity with institutions.

Derivatives platform BitMEX boasts similarly impressive figures, claiming to have clocked more than $1 trillion in trading volume over the past year.

On approval, the firm was issued a no-action relief letter that recognizes the product's structure and sets out specific requirements that must be adhered to in exchange for exemption from certain federal regulations.

The structure of ErisX is “unique”, said CEO Thomas Chippas in a statement, because it “divides the trading and settlement functions using traditional DCM (exchange) and DCO (clearing) models.”

Typically associated with traditional markets, Chippas claims this infrastructure should help widen the customer base by making institutional investors more comfortable with the platform. “This reflects the structure that institutional investors expect from other asset classes and will help drive these markets toward greater relevance and accessibility," he said.

Though neither firm has yet issued dates for the release of the new products, traders living in the US and Singapore are expected to be able to use Ledger X's service as early as July. This will be subject to an initial minimum deposit requirement of $10,000 paid in dollars or bitcoin.

This would make LedgerX's product the first CFTC-approved physical bitcoin futures contract, and it will join several unregulated physically-backed futures offered by offshore exchanges like the Seychelles-based Coinflex.

At an undefined point later this year, ErisX's futures contracts will also become available, a similarly short timeline which reflects the rush to capitalize on growing demand in the bitcoin futures market. Courtesy: BNC

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