U.K.-based cryptocurrency exchange Coinfloor has announced that it will be launching a physically settled bitcoin futures next month, making it a first.
Speaking at the Futures Industry Association’s annual conference in Boca Raton, Florida, Mark Lamb, co-founder of Coinfloor, said to Reuters that:
When you talk to the liquidity providers, they all say the same thing, which is they want a physically delivered futures contract so they can hedge their exposure across exchanges.
In December, Chicago-based registered exchange CME Group Inc and Cboe Global Markets Inc started offering exposure to cryptocurrencies such as bitcoin. Bitmex, CryptoFacilities also offer bitcoin futures, whereas Wall Street investment firm Cantor Fitzgerald self-certified a new contract for binary options tied to bitcoin, as announced by the U.S. Commodities Futures Trading Commission (CFTC). This makes Coinfloor, at least, the sixth company to list a product offering exposure to digital currencies.
However, unlike the aforementioned organisations, which deliver cash settled contracts, Coinfloor will be providing physically settled contracts. This means that when the contract expires, the asset that is being traded – bitcoin – will be delivered.
According to Lamb, there has been cause for concern among investors and large proprietary trading firms regarding cash settlements, with many believing that they can easily be manipulated. He is of the opinion that individuals may try to move the price of the indexes or auctions on spot exchanges that set futures prices in their favour.
After the first day of trading for the Cboe exchange in December, the platform saw the price of bitcoin jump in value by $1,000, pushing the price of one coin to above $17,000.
However, the idea of bitcoin futures is still looked at with some concern. In response, in January, J. Christopher Giancarlo, the chair of the CFTC, announced that the regulator would be developing a ‘heightened review‘ process for how cryptocurrency derivatives, such as bitcoin futures, come to the market.
The regulator has also come under fire in the past from the Futures Industry Association (FIA) for allegedly not consulting with the organisation regarding the CME and Cboe product launches. According to the FIA, the agency rushed through the process by permitting the exchanges to ‘self-certify‘ their bitcoin futures contracts.
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