With fund managers looking to hold financial instruments that aren’t correlated with equities, LedgerX’s platform to act as a clearing house for collateralized digital currency swaps, meet investor’s demands.
In a major milestone in the history of bitcoins, New York-based LedgerX, a bitcoin options exchange, has received license to clear and settle derivatives for digital currencies from the U.S. Commodity Futures Commission.
The license authorizes LedgerX to provide clearing services for fully collateralized digital currency swaps.
In a statement the CFTC said, LedgerX was also granted a license to operate as a swap execution facility. However it is made it clear that the license “does not constitute or imply a commission endorsement of the use of digital currency generally, or bitcoin specifically.”
Armed with this license, participants in LedgerX’s trading platform will be able to hedge bitcoins and other digital currencies using exchange-traded and centrally cleared option contracts.
To begin with, LedgerX is likely to list one-to six-month options contracts for bitcoins, with other digital currency contracts, including ethereum (ETH), expected to follow.
Like botcoin, ethereum is another online public ledger, the difference between the two being ethereum self-executes transactions.
“Having a regulated clearing house will open the market to a lot of other investors such as the large institutions,” said Paul Chou, chief executive officer of LedgerX. “A proper regulatory framework will open up the market and make them comfortable.”
As per Chou, who sits on the CFTC’s Technology Advisory Committee, it took more than two years to win regulatory approval partly due to the long education process.
To secure the license, LedgerX received $11.4 million in funding in May which was led by Miami International Holdings Inc and China’s Huiyin Blockchain Venture Investments.
“We are seeing strong demand from institutions that previously could not participate in the bitcoin market due to compliance restrictions against unregulated venues,” said Chou.
According to Chou, fund managers are looking to hold financial instruments that are not correlated with the broader equity market. Digital currencies meet that need.