UK Exchange to Launch First Physically Delivered Cryptocurrency Futures Contract
Coinfloor, a London-based group of cryptocurrency exchanges for institutional and sophisticated investors and traders, plans to launch a futures exchange for digital assets that will include the first physically delivered bitcoin futures contracts.
The new exchange, CoinfloorEX, will allow miners, hedge funds, traders and sophisticated investors to unlock the financial potential of bitcoin at scale, through specifically designed cryptocurrency contracts and operational controls, supported by institutional grade risk management and governance, Coinifloor announced in a press release.
Protecting The Price
By offering the first physically delivered cryptocurrency futures contracts, CoinfloorEX was designed to protect investors and traders against price slippage on positions at the time of settlement, as well as concerns of market manipulation.
The settlement is based on physical delivery rather than an index price from across other exchanges, providing greater pricing transparency.
Access to Coinfloor’s spot exchange will allow investors to convert bitcoin to fiat currency post-physical delivery, providing opportunities for longer-term currency appreciation or through meeting bitcoin-denominated obligations.
The exchange is secured by 100% multi-signature cold storage, protecting client portfolios from theft, loss or other security issues associated with partially online or online only storage.
Coinfloor also provides monthly solvency audits of bitcoin balances. The first physically delivered contract will be launching in April and will be for the delivery of bitcoin.
“Our mission is to build a bridge between fiat currency and cryptocurrency to drive the stability and sustainability of cryptocurrency,” said Obi Nwosu, CEO of Coinfloor. He said market participants want futures contracts to switch from cash to physical settlement.
Responding To The Market
Liquidity providers want a physically delivered futures contract to be able to hedge their exposures across exchanges, Mark Lamb, Coinfloor co-founder, told Reuters during the Futures Industry Association’s annual conference in Boca Raton, Florida.
A few traditional futures exchanges, such as CME Group Inc. and Cboe Global Markets Inc., offer bitcoin futures that are cash settled, in which the cryptocurrency itself does not change hands.
Large investors and proprietary trading firms have noted that the cash-settled process can be easily manipulated, Lamb said. Ill-intentioned players can set the futures prices in their favor by moving the price of the indexes or auctions on spot exchanges that set the futures prices in, he said.
Coinfloor investors include the closely held Chicago-based proprietary trading firm DRW, which was launched in 2013 and runs the largest U.K.-based cryptocurrency spot exchange in London and another one in Gibraltar.
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