A regulated Bitcoin Futures exchange LedgerX has recently launched physically-settled Bitcoin futures contracts. The new provision will allow the investors to get the physical delivery of BTC. Many analysts believe that this move will further augment the impact on the price of BTC.
LedgerX is a regulated futures exchange that is based in the U.S. It is a bitcoin future, options, and swaps exchange which is regulated by the US Commodity Futures Trading Commission (CFTC). LedgerX services are available round the clock and round the year. It offers physical settlement of all contracts, block trading, and market-making opportunities for medium-scale and large institutional investors. Launched in 2017, LedgerX has already cleared over 10 million options and swap contracts since its launch in 2017. It carries the reputation of being one of the firsts to pioneer bitcoin mini contracts which has a contract size of 0.01 BTC. This will assist in granular trading along with prospects of more scalability as the bitcoin prices trend upwards.
Impact of physical delivery on Bitcoin Price
Going back, when Bakkt was first initiated with the support and backing of its NYSE parent company ICE it received a lot of traction and hype because it talked about the physical delivery of BTC. If the institutions wanted, they would in reality hold BTC through Bakkt’s custodial security service. The general counsel of Compound at that time believe that this new move could potentially disrupt or affect the price of Bitcoin. He was quoted as saying:
“Also noteworthy is the fact that Bakkt will custody & deliver real bitcoin. That means institutional inflows would reduce supply and thus (maybe) increase the price too. This is different from other regulated futures markets like CME and CBOE, which only deal in cash-settled futures.”
Further analysis reveals that the physically-settled Bitcoin contracts could sure affect the BTC price because it has an impact on supply per se. When the investors would be trading cash-settled futures contracts, they would not be purchasing real BTC to long the asset which will reduce the potential supply of the cryptocurrency. Users who open long positions in BTC on the futures exchange could take physical delivery of the digital asset. The order book of the exchange will indeed have full transparency on the profundity of the market. LedgerX has explained that the investors could trade out their position or choose to hold to maturity. If it is a long trade, then they can take delivery of BTC.
All the orders will be executed on LedgerX’s central limit order book. There will be full price transparency and even the negotiated block trades will be printed on the central limit order book.
“Futures have always been a part of the company’s roadmap, and we are excited about today’s launch. Futures and options are a big part of the trading landscape and we believe it is important to have a complete suite of listed products to enhance platform liquidity and the ability to effectively hedge risk.”
Ever since Bitcoin’s fall from $12,000 the futures market also has slumped a great deal. The overall trading volumes show a decline rate with open interest drops another cause of concern. Despite this decline in short-term momentum, institutional activity has rapidly increased.