Update Sept 18:
The popular cryptocurrency exchangeHitBTC signed an agreemen with TeraExchange, a swap execution facility registered with the Commodity Futures Trading Commission, to provide an accurate and timed reference point for the first regulated platform for Bitcoin derivatives.
According to the agreement, HitBTC’s trading data is included in the TeraExchange Bitcoin Price Index. The Tera Bitcoin Price Index employs a dynamic algorithm that compiles and filters data on a real-time basis from a number of widely utilized global Bitcoin exchanges. HitBTC executes and maintains the information sharing agreement with TeraExchange in order to be included in the index, as required by the Commodity Futures Trading Commission.
“The structure of the Bitcoin swap marketplace reflects extensive client input, providing participants the benefits of transparent price discovery and efficient risk transfer.”
- Leonard T. Nuara
President, co-founder, TeraExchange
As a measure to ensure effective functioning of trading marketplaces HitBTC and TeraExchange agreed to jointly develop measures to counteract potential market manipulation and disruptive trading practices.
“Regulated Bitcoin swap trading provides institutional clients with a more efficient and confident way to hedge and trade. A robust price index also helps the growing Bitcoin trading community to accurately mark-to-market positions while establishing trust and stability in this growing global marketplace.”
- Christian Martin
CEO, Co-founder, TeraExchange
Presently, both companies plan to extend cooperation and seek new opportunities to provide the best and most technologically advanced solutions for the benefit of their customers.
Swap execution facility TeraExchange announces it is now registered with the Commodity Futures Trading Commission (CFTC) and becomes the first regulated platform for Bitcoin derivatives with a spot Bitcoin index.
New-Jersey-based Bitcoin derivatives exchange TeraExchange announced on September 12, it has received the approval from US federal regulator CFTC for its Bitcoin derivatives platform, according to a press release. USD/Bitcoin swaps’ trading is now subject to the regulations of TeraExchange and the CFTC.
TeraExchange's Bitcoin derivatives trading and hedging was first announced in March 2014 and the demand of a regulated product has considerably gained interest over time, especially from merchants, payment processors, miners and hedge funds, said the company.
Co-founder and CEO Christian Martin told Reuters: "For a merchant to take Bitcoin, there wasn't until this product a regulated way for them to put on a hedge to manage the risk... and now with this product they can."
- Christian Martin CEO TeraExchange
The derivative offers an insurance against Bitcoin's price fluctuations by locking in a dollar value the Bitcoin holdings value. Investors can now list and trade dollar-denominated Bitcoin swaps, which are range from one day to two-year maturities. The swap is a bilateral contract requesting one counterparty to pay the other on its expiry, depending on whether the asset's price has exceeded or fallen behind the appointed threshold.
Martin added that regulated derivatives trading would help smooth out Bitcoin's volatility and help the digital currency gain widespread acceptance as a currency and a payment method.
According to president and co-founder Leonard Nuara, the new product is an important milestone for Bitcoin and will most certainly attract a broad landscape of investors interested in stepping in in the digital currency industry. The executive told CoinDesk:
"This is a major step forward for the broader bitcoin community by building out a first institutional mechanism for hedging in the bitcoin space in a regulated marketplace. This is a step toward, potentially, reducing volatility and increasing liquidity in the marketplace because people will have more safety and soundness in their trading."
TeraExchange was launched as a SEF in October 2013. After its announcement in March 2014, it took the company over six months to get the Bitcoin swap and index past the US regulator. However, TeraExchange's Bitcoin swap contracts are still pending approval from the CFTC.
Martin told the Wall Street Journal that the key to the CFTC's approval was TeraExchange's index, which was built based on an average of prices from six different Bitcoin exchanges around the globe. The CEO qualified it "a true neutral arbiter of the Bitcoin price on a 24-hour basis that's not susceptible to manipulation."
Available since Friday, the exchange told Reuters 50 clients interested in the new product have already registered, and the company has already started receiving commitments from both markets makers and companies offering Bitcoin prices for buyers and sellers.
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