Daily Archives: July 25, 2017

For the first time ever, the U.S. Commodity Futures Trading Commission (CFTC) has given permission to a private company to exchange and clear any number of cryptocurrency derivatives.

After three years of work, New York-based startup LedgerX was today granted a rare derivatives clearing organization (DCO) license allowing it to clear and custody financial instruments backed by bitcoin, ether and any number of blockchain-based cryptocurrencies.

The instruments, designed to mitigate investment risk, are the latest signal that the cryptocurrency markets are maturing, with the total value of the asset class crossing $115bn earlier this year.

But the guidance from the agency in charge of ensuring the integrity of all futures and swaps markets in the US could have bigger implications than just letting a single company finally open for business.

LedgerX co-founder and CEO Paul Chou told CoinDesk:

"It means a lot, not just for the industry, but globally, because the CFTC will set the example of what a well-licensed clearinghouse and exchange based around digital currencies will look like."

As part of the DCO license, LedgerX will be required to surveil the institutional investors it works with and create increased transparency about those customers for the regulatory agency. Eligible participants include broker dealers, banks, futures commission merchants, qualified commodity pools and qualified high net worth investors.

With the granting of this license, these groups will now be able to enter into complex contracts with one another, with values derived from the underlying cryptographic asset.

As a result, Chou believes the creation of these assets will mark a pivotal moment for cryptocurrency markets, giving investors more sophisticated ways to hedge, and possibly, helping to stabilize long-volatile cryptocurrency prices.

"We have a lot of in-progress talks with customers that are looking to work with retail customers that want to buy derivatives on bitcoin, binaries, all these exotic options," he said.

Though frequently described as a bitcoin exchange and clearinghouse, LedgerX's license did not require an overly broad definition of cryptocurrency. Rather, the permission is open to any of a series of instruments derived from the cryptographic primitives used to build a number of protocols.

Similar to how G5 currencies are typically viewed as safe investments due to their relative stability, Chou imagines three to five cryptocurrencies will be deemed "viable" candidates for the exchange and clearinghouse, based on market capitalization and functionality.

Initial coin offering (ICO) tokens sold to raise funds will not likely be considered for inclusion on LedgerX, given their gray area between CFTC-regulated commodities and SEC regulated securities.

Rather than of having to reapply for each currency and each derivative contract LedgerX will "self-certify" that the new opportunity is compliant.

"Instead of evaluating different governments," as with the case of a G5 currency, said Chou. "Youll be evaluating different technologies or approaches underneath these digital currencies."

The CFTC decision comes at a time when many in the cryptocurrency industry have been anxiously awaiting clear guidance including other regulators.

In March, another lengthy cryptocurrency regulatory application was refused by the Securities and Exchange Commission (SEC), citing among other things, a lack of "surveillance-sharing agreements," and a requirement that "markets must be regulated."

Currently under review by the SEC, the application would let Tyler and Cameron Winklevoss list a bitcoin-tied exchange-traded fund (ETF) on the BATS BTX Excahnge.

Given LedgerX's lengthy requirements to report on its customers and the regulatory body's history of co-regulating certain instruments, Chou believes today's decision could provide just the answer the SEC, and other agencies in Asia and Europe have been waiting for.

"I think the CFTC will set an example both for other regulators here in the U.S., but also globally as well," he said.

After years of working and waiting, progress had been moving swiftly leading up to today's news.

It was just earlier this month that the CFTC formally registered LedgerX as a swap execution facility (SEF) after operating with a temporary license for about two years, making the New York-based firm only the second cryptocurrency outfit to be regulated under the provision.

A close observer of the developing story might have even found a clue to the story back in May, when LedgerX announced it had raised an $11.4 million Series B led by Miami International Holdings and Huiyin Blockchain Venture Investments.

It turns out, the money for the startup that had already raised a $1.5 million seed round and an undisclosed Series A was intended to meet capital requirements implemented by the Dodd-Frank Act. In order to ensure agreements can be fulfilled in case of an emergency, the act requires that a DCO hold operating costs to run its business for a year.

Going as far back as September 2015, former CFTC commissioner Mark Wetjen has been sitting on the board of LedgerX parent company Ledger Holdings, and since January 2016, Chou has served on the CFTC technology advisory committee.

In a statement, Wetjen said:

"These are exciting times to have a new digital asset class emerge. I hope that the effort LedgerX put forward in the U.S. can set the stage for a global approach to this new digital asset class."

By moving the trading and settling of cryptocurrency assets into one, heavily observed operation, Chou expects he'll be able to generate revenue from an entirely new source: data analytics to an unprecedented depth.

In addition to charging other exchanges for his service, Chou expects the CFTC's heavy surveillance requirements will result in cryptocurrency markets data that can be cross-referenced with points from previously existing data sets.

When the platform formally launches later this year, these services and more will only be available to eligible contract participants. But, Chou described his business model as "multi-stage," eventually serving those who were previously unable to afford such services.

"At first we're going to target a lot of institutional customers that want to invest in this asset class," said Chou, who added:

"Then later, pretty much everybody."

Flames on hot rod via Michael del Castillo

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Start Your Hedging: LedgerX to Begin Trading Cryptocurrency ... - CoinDesk

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1.20pm: Bitcoin needs a few more 'swings' before trend continues

According to Sheba Jafari, head of technical strategy at Goldman Sachs, bitcoin will "need a few more swings" before the witnessed trend continues.

"Anything above 3,000 (Jun. 13th high) will suggest potential to have already started wave V, which again has a minimum target at 2,988 and scope to reach 3,691 (the latter being a preferred target as this assumes a new high)," Ms Jafari wrote in a note to clients.

11am: Bitcoin bounces back from price crash

Bitcoin has recovered from its recent crash, with the price of the cryptocurrency reaching $2,790 at 2.00am BST this morning before falling slightly to $2,691 as of 11.30am BST.

This is close to the high of $2,855 that was recorded on Sunday.

The price has stabilised after Bitcoin miners activated BIP91 a software update aimed at solving Bitcoins scalability problem.

On Saturday, BIP91 was activated after 93 per cent of miners signalled their support well above the 80 per cent threshold that was needed.

The Bitcoin market crashed between July 12 and July 16 amid fears that the update would not be accepted, which would have triggered a user-activated soft fork splitting the cryptocurrency into two assets.

Bitcoin's volatility is very high compared to the euro, the yen or even gold

Francisco Blanch, America Merrill Lynch

Andrew Lee, head of bitcoin-shopping startup purse.io, said: Were thrilled to get past this impasse.

In further good news, Bank of America Merrill Lynch has predicted that Bitcoin will go mainstream once banks start accepting it.

A crucial hurdle for the cryptocurrency will be whether institutions accept it as collateral, the banks commodity and derivatives strategist Francisco Blanch wrote in a report.

"But we are not aware of any major institution that takes cryptocurrency as collateral at the moment, he added.

Blanch detailed how currency has developed through the ages from salt and other commodities, to gold and finally to modern money.

He noted that in the last year, volatility in Bitcoin markets fell below levels witnessed in silver markets.

COIN.DESK

"Bitcoin's volatility is very high compared to the euro, the yen or even gold," he wrote, according to CNBC.

"But it fell twice last year below the volatility of silver, the world's currency for 400 years."

Bitcoins value has more than doubled since the start of the year and has soared almost 740 per cent in the past two years, according The Motley Fool.

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Bitcoin LIVE news: Cryptocurrency soars after fears of crash wobble market - Express.co.uk

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Ray Blanco for The Daily Reckoning

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Incredible New Cryptocurrency Introducing BlancoCoin! - Daily Reckoning