Bitcoin derivatives such as futures and options, are bound to be the next step in solidifying the digital currency as an investment grade financial instrument. Crypto Facilities, a new London based derivatives trading platform, has launched a bitcoin based forward contract. Investors and traders have the ability to short-sell and buy a forward with three different expiry dates. On the Crypto Facilities exchange, one forward is equivalent to one bitcoin. The exchange allows traders to post collateral in bitcoin, no need for fiat wire transfers or any of that jazz. A trader has the ability to hold onto his position for a maximum period of nine months. The new brokerage is FCA-regulated, so a nice vote of confidence for potential clients. Crypto Facilities has learned some important lessons from the many failed bitcoin exchanges, all of their funds are held in cold storage. Cold storage on a bitcoin exchange is the most secure solution, as hackers can’t just break into the exchange’s servers and empty out all of their bitcoin wallets. Another nice security aspect of the exchange, manual withdrawals. Manual review of client withdrawal requests is much slower than automatic transfer, but after all of the bitcoin related hacking incidents, as a trader, I would gladly sacrifice speed for security, any day of the week.
Crypto Facilities is not just another exchange, but backed by very astute financial prodigies such as Timo Schlaefer, a former trader at Goldman Sachs and Jean-Christophe Laruelle, architect of trading systems at BNP Paribas and Societe Generale.
The general consensus surrounding the Bitcoin derivatives space is that, it is still in it’s infancy. Volumes are still not at levels where they can impact the bitcoin exchange rate in any meaningful way, with time and more investor confidence, volumes will eventually pick up. Hopefully the pickup in volume on derivatives exchanges, will translate into a more stable bitcoin exchange rate over time. Crypto Facilities has created their own index [Crypto Facilities Instantaneous Bitcoin Price Index (CF-BPI)] to reflect the XBT:USD spot price. The CF-BPI is derived by sourcing the best bids and asks every 60 seconds from established bitcoin exchanges (Bitfinex, BitStamp, BTC-e and lakeBTC) and taking the median of the last available mid-price.
The regulatory landscape in the UK regarding bitcoin and related digital currency derivatives is still in murky territory. Bitcoin derivatives such as forwards are not currently under the supervision of the Financial Conduct Authority (FCA). Crypto Facilities uses a type of “regulatory intermediary” legal entity that falls under FCA oversight, that intermediary entity has the duty to make sure Crypto Facilities is in compliance with FCA rules. The company overseeing the exchange is called Met Facilities LLP, and is registered as a financial services firm in the UK.
Several other cryptocurrency exchanges in the UK have adopted a very similar regulatory arrangement (Lazy Coins, DSX). Schlaefer and Laruelle have big plans for the future of Crypto Facilities and further involvement in other cryptocurrency related ventures.
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