The supplier of cryptocurrency derivatives LedgerX plans to become the first American firm offering physically calculated bitcoin futures contracts.
On Monday, the company announced that it had applied for a license for a specific contract market (DCM), which would allow LedgerX to offer its customers physically calculated bitcoin futures contracts. Unlike cash bitcoins futures offered by CME Group (and earlier Cboe), customers will receive the real bitcoin underlying the contract after its expiration, and not the equivalent in US dollars.
And, more importantly, LedgerX can attract new retail investors with its new proposal, said Jutika Chow, who is also the chief director of risks and operational issues at LedgerX.
“We will be able to serve clients of any size, we will not be limited to [institutional clients],” said Chow.
After approval, LedgerX will offer bitcoins, bitcoin options and bitcoin futures to retail customers through a new platform called Omni .
Omni , built on existing LedgerX infrastructure, will act as a storage and trading service provider. The original LedgerX platform received regulatory approval for the first time in July 2017, although the platform itself was launched only in the same year.
The new platform will also use the existing LedgerX institutional liquidity pool to “offer retail customers first-class experience from day one,” said Chow.
According to Zhou, launching a retail platform with futures offers has always been our plan. The company first began offering physical products in October 2017, trading $ 1 million in the first week.
“As soon as the platform proved itself to be stable, and we got an operational pace, we applied for a license at the CFTC,” Zhou said.
And also added:
"For us, this is a philosophically important step, because bitcoin is available to everyone, and we … really wanted to make our derivative products accessible to all investors."
The company applied for a license to offer futures contracts in November 2018 and has since been engaged in “constructive dialogue” with the CFTC, Zhou said. However, it cannot comment on the deadlines when the CFTC can approve the LedgerX application, or about what kind of admission the firm expects from customers.
The CFTC has already granted LedgerX two licenses, which allows the firm to act as a swap execution mechanism (SEF), which is the company's exchange platform, and derivatives clearing organization (DCO), which is the clearing house.
Therefore, the LedgerX DCM application is simply an additional license in addition to the existing permissions. According to Chou, the company has already been established to provide futures services.
Since its launch, LedgerX has provided institutions with regulated, physically based swaps and options for bitcoins and has claimed approximately 200 different firms as customers.
While CME and Cboe began to offer futures for bitcoins with cash in December 2017, no company has released a physically equivalent today, although this is not due to the lack of attempts.
Several large firms are planning to enter into physical contracts for Bitcoins, including Bakkt, a company created by the Intercontinental Exchange, which is the parent company of the New York Stock Exchange; Seed CX, a crypto exchanger supported by Bain Capital Ventures; and ErisX, a startup supported by TD Ameritrade brokerage.
However, all these firms are also waiting for their own regulatory approvals, which will give LedgerX a chance to be the first to launch a real product.
“This is a natural evolution, and it stems from the fact that we have been working in a physically established market for more than a year and a half, so this was a natural [expansion],” said Zhou.