LedgerX Granted Key CFTC License For Digital Currency Derivatives

Jul 25 2017 | 12:13am ET

Nearly two years after the U.S. CFTC first granted bitcoin startup LedgerX temporary registration as a swap execution facility, the regulator on Monday approved the company’s application to clear and settle derivative contracts for the digital currency.

The move paves the way for the long-awaited advent of fully collateralized currency options on digital currencies, like bitcoin and ether. With the license, members of LedgerX’s institutional trading platform will be able to hedge their digital currency holdings via centrally-cleared options contracts, something that until now was unavailable to them. 

Some form of U.S.-regulated derivative capability for bitcoin has been often considered necessary for both taming the wild volatility that has become synonymous with the $116 billion digital currency asset class, as well as attracting greater trading interest from large financial institutions.

LedgerX reportedly expects to start with one- to six-month options on bitcoin and subsequently listing similar instruments for more mature digital currencies such as ether. Although the license itself is not specific to particular cryptocurrencies, for the moment LedgerX does not expect to list derivatives associated with the initial coin offerings that are all the rage among fintech startups. 

With the regulatory approvals in place, LedgerX expects its platform will formally launch later this year and be available initially to accredited investors and qualified institutions – many of which have wanted to invest in the asset class but lacked a regulated venue on which to do it.

The CFTC ruling may revive the prospects for proposals from Gemini and SolidX for bitcoin-based exchange-traded funds, which were each nixed by the SEC earlier this year citing, in part, a lack of a regulated underlying market for the digital currencies. 

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