Coinfloor to Launch Physically Settled Bitcoin Futures Contracts
UK cryptocurrency exchange Coinfloor is planning to launch bitcoin futures contracts in April. But unlike similar ones launched by the likes of US based CBOE, the futures contracts will be physically settled. This means the exchange will deliver the actual traded asset – bitcoin – after the expiry of the contract.
Coinfloor now becomes the fifth exchange to launch bitcoin futures contracts worldwide and the first physically delivered bitcoin futures contract. The contracts will be launched on a dedicated platform known as CoinfloorEX. Customers’ deposits will be kept entirely in cold storage with multiple layers of keys to protect against theft.
In contrast, cash-settled futures like those launched by the CME Group and CBOE do not deliver the actual traded asset. The contract owners are instead paid in cash without the underlying asset changing hands. This has led to serious concerns being raised about the transparency of the whole process particularly when it comes to setting prices.
It is this shortcoming that Coinfloor hopes to capitalise on.
“Numerous market participants are calling on existing cryptocurrency exchanges that provide futures contracts to switch from cash to physical settlement. However, making that transition will be very difficult for them to achieve,” Coinfloor CEO Obi Nwosu is quoted as saying.
According to Nwosu, the company has been working for two years to bring the functionality to the market.
Coinfloor is targeting sophisticated retail investors, proprietary trading firms and cryptocurrency miners with the offer.
The company operates the largest cryptocurrency spot exchange in London. US-based trading firm DRW has a stake in the company.
Institutional investors and traders can now “capitalize on market dynamics, within their own risk parameters and in line with their individual trading strategies,” Nwosu added.
“When you talk to the liquidity providers, they all say the same thing, which is they want a physically delivered futures contract so they can hedge their exposure across exchanges.”Coinfloor cofounder Mark Lamb told Reuters.