LedgerX securing a regulatory approval for clearing and settling derivative contracts on bitcoin and other cryptocoins indicates increasing official acceptance of cryptocurrencies, a recent Bloomberg article says. According to the author of the article, Aaron Brown, this move could redefine these new assets and potentially lead to their mass adoption.
Brown argues that derivatives clearing houses catalyse “enormous economic change”. He gave an example with the creation of agricultural futures clearing houses in the mid-19th century American West, which “transformed a sparsely populated backwater into ground zero for the second Industrial Revolution”. He believes that a similar effect could be felt in the crypto space.
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LedgerX and future derivatives clearing houses could provide a convenient way for people to short cryptocurrencies or to take levered positions in them, which would attract more investors interested in these activities.
This could create a “virtuous cycle”, where more investors are attracted to the market due to availability of leverage and shorting and large amounts of cryptocurrencies are taken out of circulation, pushing prices up and reducing volatility. This, in turn, attracts users who have previously avoided cryptocurrency due to their price volatility.
“People who never used cryptocurrencies are pulled in by the reduced volatility, attractive returns and a better suite of retail products,” Brown explained. “More use means more legal and regulatory clarity. All of this means more liquidity, higher prices and lower volatility, feeding the cycle.”
It remains to be seen whether LedgerX would be able to attract the volume and liquidity to get this new market off the ground. However, other players are already joining in.
On Wednesday, the Chicago Board Options Exchange revealed that it was teaming up with digital currency exchange Gemini Trust, in order to launch its own bitcoin derivatives trading products by early next year. CBOE said that it awaits approval for the move from the US Commodity Futures Trading Commission, the same body that greenlit LedgerX’s cryptocurrency derivatives clearing operations.
In today’s trading, the bitcoin price stood at $2,845.87, as of 13:06 BST. The cryptocurrency has gained just over four percent, according to data from the Coinbase-operated GDAX exchange.