Digital currency investors and miners will be able to hedge the volatile assets under U.S. regulatory oversight for the first time in just a couple of months.
The U.S. Commodity Futures Trading Commission granted LedgerX, a cryptocurrency trading platform operator, registration as a clearing house for derivatives contracts settling in digital currencies, according to a statement by the regulators Monday. With the approval, LedgerX is set to become the first federally regulated digital currency options exchange and clearinghouse in the U.S. as interest and volatility in the method of exchange surges.
“It's an important milestone for the digital currency market broadly,” said Paul Chou, a former Goldman Sachs trader, who is LedgerX's chief executive. “This will pave the way for others globally to look at the space and the appropriate way to regulate a new market like this.”
The New York-based company plans to offer one- to six-month bitcoin-to-dollars options contracts in late September to early October, Chou said in a telephone interview. Contracts for other digital currencies including for Ethereum's ether are expected to follow, as well as longer-term protection.
The CFTC had granted LedgerX authorization to trade digital currencies earlier this month. The company, which is backed by Alphabet Inc.'s venture-capital arm, aims to provide institutional investors the ability to hedge against price swings in digital currencies in the same way they protect against volatility in other assets.
Other platforms that offer options trading are Bitcoin Mercantile Exchange, owned by Seychelles-incorporated HDR Global Trading Ltd., and Deribit of Amsterdam. In 2015, the CFTC ordered bitcoin options trading platform Derivabit, which was based in California, to cease operations as it hadn't followed regulatory procedures.
This is another step in the crypto-currency community's efforts for the sector to mature and draw in a broader user and investor base. Bitcoin had been under pressure as feuding factions disagreed on how to help the digital asset scale, until prices rebounded last week on signs an agreement is near.
Chou said the ability to hedge digital assets will attract institutional investors who had been on the sidelines.
“We're getting people that want to hedge and people that want exposure to a new asset class that they can add to their portfolio and help diversify, and get potential upside of potential digital currency,” he said. “We want to keep it to a certain size in the beginning before we scale up over the next couple of months.”
Bloomberg News
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