CoinFlex, which initially began as CoinfloorEX and once a unit of the UK Bitcoin exchange Coinfloor, a venture once owned by a consortium including Roger Ver and Trading Technologies international, will be offering physically-backed future contracts for Bitcoin, Bitcoin Cash, and Ethereum. While the CEO was interviewed by Bloomberg earlier this year, CoinFlex recently tweeted just today, that they've launched their official website and that the official launch of the exchange will be coming soon.
CoinFlex's offering is definitely exciting news for everyone in the cryptocurrency community. I know that the community has been requesting for physically-backed futures for a while now.
Now if you're unsure of what physically-backed and settled futures are, it means that, when the futures contracts expire, the owners will be given the underlying cryptocurrency instead of receiving a cash payment. Mark Lamb, the CEO of CoinFlex explains it perfectly in his interview with Bloomberg, which was also recorded down by the Daily HODL.
He mentioned that "if you're trading a cash-settled future, you're open to manipulation of the index at the time of settlement. If you're a market maker where you're doing a basis trade, where you're arbitraging the cash and spot markets, the cash markets versus the futures market, what you really want to be sure about is, at the time of expiry you know exactly what you're going to get...With a physically-delivered future, it really ties the future's price to the actual, underlying asset because, at expiry, everyone knows what they're going to get. Everyone who's short delivers Bitcoin, receives cash. Everyone who's long delivers cash, receives Bitcoin. So that kind of tying down to the real world allows these types of futures to be used for much more than just speculation. They're great speculative tools, but they become useful for commercial hedging, hedging miner exposure, hedging, and OTC trade or making markets."
As you guys can see here, physical settlement and physically delivered cryptocurrency futures mean that individuals participating receive or deliver the digital asset, so they don't experience any risk of manipulation when it comes to cash price settlement. CoinFLEX will likely compete with BitMEX, one of the largest cryptocurrency trading platforms, and the Intercontinental Exchange's Bakkt, which is still waiting on the Commodity Futures Trading Commission to approve of their launch.
As part of their physically delivered futures offering, CoinFLEX has decided to use Tether, seen as one of the most controversial stablecoins in the market. CoinFLEX's contracts will trade against Tether; a token pegged to the dollar. So at expiry, the parties who are short will deliver Bitcoin and receive cash, and for longs, it will be the other way around. CEO Mark Lamb noted that this approach is significantly different to the way regular cash-settled contracts at rival exchanges are made where gains and losses are either paid out in Bitcoin (as a proxy for cash based on an index price) or entirely in dollars.
He noted that "Tether is the most liquid, highest volume stable coin that exists right now and seeing the resolution of recent issues and attestations by banks and outside firms make us confident in using it as a stable coin."
Now, I believe that it's great to see more progress in this field. This step forward helps people who were feeling a bit skeptical about Bitcoin Futures or have withdrawn from Bitcoin futures because of the price manipulation; it gives them more confidence to invest in the industry. It also helps institutional investors feel more assured and be more likely to offer futures to their clients as a viable investment option, and therefore it overall opens up the cryptocurrency industry to a broader investor base.
If we look back, when Bitcoin futures was initially introduced to the market by the CBOE, the price of Bitcoin jumped up by almost 10% to 16,956 dollars!
Similarly, in the run-up to the launch of Bitcoin futures on the CME, the Bitcoin price broke through the 20,000 barriers.
While I don't think there would be an as significant price spike when it comes to physically delivered cryptocurrency futures, I'm glad that we're making it easier and solving the pain points of investors to make to help them trade crypto with great ease.
So what are your thoughts on this situation guys?
Are you glad to see physically-backed crypto futures launch pretty soon?
And do you think this will have a significant impact on the industry?
Let me know what you guys think in the comments below! It's Cindy with CryptoPig, Catch you guys around!
Let me know what you guys think in the comments below!
It's Cindy with CryptoPig, Catch you guys around!
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Disclaimer: Cryptopig content is written by a team of blockchain passionate people. We are not registered as investment advisors. Don’t take the information in this post as investment advice and make sure you do your own research before investing. Cryptocurrencies are a very risky investment, never invest more money than you can afford to lose