Finance

Demand for Crypto Derivatives Swells as CME’s Bitcoin Volume Rises

22/01/2020 by Idelto Editor

The global markets company Chicago Mercantile Exchange (CME) has seen considerable demand since launching its options contracts in the wake of the firm’s bitcoin futures. On the first day of swaps, CME’s bitcoin options saw 55 contracts ($2.3 million). By the end of the week, the firm’s bitcoin options volume more than doubled with 122 contracts ($5.3 million) sold.

Also read: Bitcoin Futures Hit 3-Month High in Frenetic Tuesday Trading

CME Bitcoin Options See Steady Growth

Regulated crypto derivatives products have seen strong demand and just recently the forex marketplace CME launched options on the firm’s bitcoin futures contracts. The foreign exchange company announced its bitcoin options offering in mid-September as CME executive Tim McCourt said there was “increasing client demand” for such products. McCourt also remarked that the options would provide “clients with additional flexibility to trade and hedge their bitcoin price risk.”

Following the announcement, the ICE-owned Bakkt derivatives marketplace launched bitcoin options in the U.S., alongside opening cash-settled bitcoin futures in Asia. CME’s options started trading on January 13 and the marketplace saw a grand total of 55 options contracts or $2.3 million sold that day. As news.Bitcoin.com’s CME options report mentioned in November, each contract represents 5 BTC.

The derivatives markets researchers from Skew.com have also recorded the options action on CME since the day the products launched. “Just added CME to our bitcoin options open interest radar,” the researchers tweeted. On January 17, Skew wrote that CME’s open interest for bitcoin futures was “up 100% since the start of the year.” Following the 55 contracts on opening day, CME bitcoin options saw 122 contracts worth $5.3 million on January 17.

“[The] first week of CME options closed on a strong note with 610 bitcoin options trading on Friday,” Skew researchers noted on January 20. In addition to the strong CME options start, demand for crypto derivatives has been steadily climbing. A few days before CME launched the bitcoin options, Skew tweeted that global open interest in bitcoin derivatives has spiked 15% to roughly $3.5 billion on January 15. This includes institutional marketplaces like CME and Bakkt but also Okex, Deribit, Bitfinex, Ledgerx, FTX, Huobi, Kraken, Binance, and Bitmex.

Bakkt’s Bitcoin Options Flounder and Retail Derivatives Volumes Skyrocket

As CME records a steady climb from 55 contracts to 122 on January 17, open interest has also risen from 55 to 219. On January 21, the Twitter account Ecoinmetrics explained that Bakkt’s BTC futures were dealing with low trade volumes. “Low trading activity on the Bakkt futures,” the researchers detailed. “At the same time the Bakkt BTC options market is completely dead — Not looking very good when compared to the CME markets,” Ecoinmetrics added. With CME’s bitcoin derivatives products, the story is different. “Open interest is still high on BTC futures,” Ecoinmetrics explained the following day. “Slow increase in activity on the May’20/Jun’20 contracts after the halving — On the options side: 27 contracts traded and open interest climbing to 244 contracts.”

There were 1,039 ($9.15 million) Bakkt bitcoin monthly futures traded on Tuesday. The volume is far less than the all-time high Bakkt saw on December 18, 2019, with 6,601 physically-settled monthly futures traded. At 10:20 a.m. EST on January 22, Bakkt’s volume is around 386 BTC.

Despite the recent rise in CME-based bitcoin futures products, the volumes are still minuscule compared to the crypto derivatives giants who deal with retail customers. During the last week, Bakkt’s physically traded bitcoin futures volume has been much lighter but demand has grown since the product launched. CME and Bakkt have a long way to go before they catch up to the massive volumes Bitmex, Bitfinex, and Coinflex process on a daily basis.

What do you think about the growing demand for CME Group’s cash-settled bitcoin options? What do you think about Bakkt volumes slowing down last week? Let us know what you think about the crypto derivatives industry in the comments section below.

Disclaimer: This article is for informational purposes only. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any ideas, software, bitcoin futures contracts, bitcoin options, crypto derivatives products, manufacturers, websites, concepts, content, goods or services mentioned in this article. Price articles and futures market updates are intended for informational purposes only and should not be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader.

Image credits: Shutterstock, Skew Research, Bakkt Volume Bot, Fair Use, and Pixabay.

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Developer Proposes Decentralized Bitcoin Hashrate Derivatives

20/01/2020 by Idelto Editor

Defi and Bitcoin Mining: Developer Creates Noncustodial Hashrate Derivatives Concept

There’s a new concept called Powswap that lets people speculate on hashrate in order to hedge against price volatility. Powswap was developed by the software engineer Jeremy Rubin who believes hashrate derivatives products allow people to leverage new trading strategies.

Also read: Regulatory Roundup: EU-Wide Crypto Regulations, New Rules in Europe, US, Asia

Powswap Where Miners and Holders Can Speculate On Hashrate

Software developer Jeremy Rubin recently announced the launch of a new project he developed called Powswap. It lets people speculate on hashrate to offer “mining derivatives with no trust required.” Essentially, in Rubin’s words, Powswap is a “smart contract/platform for trading Bitcoin hashrate derivatives” with “No middlemen. No oracles. No escrows. Nothing but Bitcoin.”

The day Rubin announced the project he explained that it works on Bitcoin Core on mainnet and that no soft forks are required. He also noted that the basic protocol doesn’t require the participation of any other parties and claimed that Powswap is “real [decentralized finance] defi.” Rubin added:

Hashrate derivatives let you trade new strategies: Miners can buy a hedge if they think the difficulty will go up putting them out of business. Miners can hedge if they think their mining operation might ‘blow up’ dropping hash rate and miners can level up new ops. Hodlers can buy insurance against hashrate drops. Hodlers can sell against a large hashrate change in order to generate passive interest and traders can do their thing in between the two to generate profits off of inefficiencies.

Powswap has a website that explains the concept in greater detail. According to the site, the project is a noncustodial, trust-free hashrate derivatives platform. Powswap could help miners mitigate against unforeseen changes in the network’s difficulty. Additionally, holders can benefit and market makers can make profits by providing liquidity to the market. At the moment, Powswap’s website says the concept is in its nascent stages and people can sign up to become a Powswap alpha tester.

Developer Proposes Decentralized Bitcoin Hashrate Derivatives — An explanation of the Powswap concept and how it works.

The project website explains how Rubin’s mining derivatives idea works by utilizing block delta contracts. Basically these contracts can detect changes in hashrate. Powswap also leverages a bulletin board that relays orders of available offers and takes a small commission for relaying these orders. There’s also bonded assurances which means the platform could be used for “an untrusted, bonded facilitator for the execution of high-value contracts where reorg safety is a concern.” Lastly, the platform contracts can be updated without onchain transactions and parties can “renegotiate contracts” as well.

“Powswap works today in Bitcoin, leveraging smart-contracts to automatically detect changes in Bitcoin’s hashrate and pay-out contracts on that basis,” the project’s website highlights. “The Powswap protocol is a flexible basis for exotic hashrate contracts, as well as simple to understand standard-form contracts.”

2018’s Crypto Winter and Miner Bankruptcies Spark the Hashrate Derivatives Concept

Rubin and his project Powswap is not the first time someone has combined the idea of bitcoin mining and derivatives products. For instance, in April 2017 CME Group published a patent that creates a derivatives platform for bitcoin miners so they can hedge against operational risks. “The contracts can be used, for example, by virtual currency miners to hedge certain risks associated with mining virtual currency,” CME’s patent notes. In December 2019, Canaan partnered with the market maker GSR and Interhash to create a concept that lets miners hedge their risks. Of course, Rubin’s Powswap concept aims to offer a decentralized version of hashrate derivatives products, unlike CME or Canaan’s centralized ideas.

When the low bitcoin prices from the crypto winter struck miners in 2018, it led to multiple bankruptcies that invoked the idea of using mining derivatives to fix the unpredictability issue. With a derivatives hedge, a mining operation could bet on a more profitable long-term difficulty position keeping them afloat if the difficulty changes drastically or BTC prices drop lower than a certain level. Jeremy Rubin’s concept seems to be a more decentralized attempt to provide the means to speculate on hashrate changes. Powswap hopes to bring defi to the world of SHA256 mining in order for miners and long term coin holders to achieve more stability.

What do you think about Powswap and Jeremy Rubin’s idea to speculate on hashrate and network difficulty changes in the form of mining derivatives? Let us know what you think about this topic in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Image credits: Shutterstock, Powswap, CME Group Patent, Wiki Commons, and Fair Use.

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Silvergate Bank and Bitstamp Launch Bitcoin Collateralized Loans

16/01/2020 by Idelto Editor

U.S.-based Silvergate Bank has launched a bitcoin collateralized loan product with Bitstamp as its launch partner. The crypto exchange will act as the bank’s agent to manage and provide custody for bitcoin collateral. The product utilizes Silvergate Bank’s Exchange Network to fund loans and process repayments in real time.

Also read: Regulatory Roundup: EU-Wide Crypto Regulations, New Rules in Europe, US, Asia

Silvergate Bank’s New Product

Silvergate Bank announced on Wednesday that it has launched a new product called SEN Leverage, which uses the Silvergate Exchange Network (SEN) to fund loans and process repayments in real time. Bitstamp, one of the oldest bitcoin exchanges, is the bank’s launch partner. The bank detailed:

SEN Leverage … will allow Silvergate Bank (‘Bank’) customers to obtain U.S. dollar (‘USD’) loans collateralized by bitcoin held at select digital currency exchanges that are also customers of the bank.

Initially, the product will be available to the bank’s institutional clients, with Bitstsamp acting as its agent to manage and provide custody for bitcoin collateral, the announcement describes.

“Our digital currency customers have asked us to help them create greater capital efficiency,” Silvergate CEO Alan Lane commented, adding that both companies worked on the project for the past six months.

Bitcoin-Collateralized Loans

In its filing with the U.S. Securities and Exchange Commission (SEC), Silvergate Bank explained that the borrowers would provide digital currency as collateral “in an amount significantly greater than the line of credit being advanced.” At no time will the bank directly hold the pledged cryptocurrency, and the offer is limited to bitcoin initially.

Silvergate Bank plans to work with existing digital currency exchange clients to act as its collateral custodian for the loans “and to liquidate the collateral in the event of a decline in collateral coverage below levels required in the borrower’s loan agreement,” the bank informed the SEC.

The SEN, the bank’s proprietary payment network, was established in 2017. In the third quarter of 2019, it facilitated over $10 billion in USD transactions, the bank claims. Digital currency and institutional clients can send USD between their Silvergate accounts and the accounts of other Silvergate clients via the bank’s API or online banking portal, enabling real-time transfers and immediate availability of funds. While there are no SEN-specific fees, clients need to have bank accounts with the bank to access the product.

Miha Grcar, Head of Business Development at Bitstamp, explained:

One of the key features of SEN Leverage is Silvergate’s real-time 24/7/365 ability to both fund loans and accept repayments over the SEN, thus enabling Silvergate’s customers to more flexibly manage their bitcoin positions.

Bitstamp explained on Wednesday that it already uses the SEN to provide 24/7/365 account funding to eligible customers. “We are excited to be working with Silvergate Bank to offer a product that will enable our clients to manage their bitcoin positions with more flexibility,” such as with leverage trading collateralized by bitcoin, the exchange noted.

Silvergate’s Digital Currency Business

Opened in 1988, Silvergate is a commercial bank headquartered in San Diego, California. As of Sept. 30, 2019, it had total assets of $2.1 billion, total deposits of $1.8 billion, and total stockholders’ equity of $230.6 million.

The bank began pursuing digital currency customers in 2013 and has been focusing on serving the crypto community ever since. According to its website, the bank currently has over 700 digital currency and fintech customers using its platform daily to grow and scale their businesses.

Silvergate Bank completed its initial public offering (IPO) on Nov. 12, 2019. Its common stock began trading on the New York Stock Exchange on Nov. 7, one day after the SEC declared its registration statement relating to the IPO effective. According to the SEC filing, the bank’s clients include Coinbase, Genesis, Bitstamp, Gemini, Sofi, Circle, Kraken, Bittrex, and Paxos.

What do you think of Silvergate Bank launching a bitcoin loan product with Bitstamp as its launch partner? Let us know in the comments section below.

Images courtesy of Shutterstock and Silvergate Bank.

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Fed Officials Ponder Funding Hedge Funds and Private Brokers Directly

14/01/2020 by Idelto Editor

On January 13, the New York Federal Reserve gave $60.7 billion to eligible private financial institutions by leveraging U.S. Treasurys and agency securities. With all the stimulus given to financial institutions since September, it hasn’t relieved the stress of economic uncertainty. Now the Fed is pondering giving money directly to hedge funds and private brokers in order to ease the current pressure and lack of liquidity within U.S. repo markets. Moreover, two Federal Reserve branch presidents have voiced concerns in regards to the American economy in 2020.

Also Read: Money and Democracy: Why You Never Get to Vote on the Most Important Part of Society

The Fed Wants to Ease Pressure Within Repo Markets by Directly Funding Hedge Funds and Private Brokers

The U.S. Federal Reserve has slashed interest rates three times since September 2019 and has pumped massive amounts of fiat into the hands of financial institutions by leveraging overnight repos and other monetary easing tactics. On Monday, the New York Fed provided eligible banks with $60.7 billion, with $30.2 billion toward agency securities and $30.5 billion in U.S. Treasurys. A few times a week since September, the Fed has been stimulating private banks in this fashion, giving them trillions of dollars.

Now the Fed is talking about giving cash directly to eligible hedge funds in order to help ease the demand within U.S. repo markets. Last week, Fed officials discussed a similar idea by creating a “standing repo facility” so private banks can access fiat reserves any time they want. Officials on Tuesday brought up the idea of hedge funds, smaller banks, and securities brokers borrowing funds from the Fed through the repo clearinghouse by pledging securities like government bonds.

According to market observers, the Fed wants to step away from repo-market operations. However, critics believe that lending funds directly to securities brokers and hedge funds could lead to a “hedge fund bailout.” After all the rate cuts and massive printing, numerous people believe “the Fed protects gamblers at the expense of the economy.” The chairperson of the Public Banking Institute Ellen Brown noted this week that the “repo market is little known to most people.” But the repo market is: “a $1-trillion-a-day credit machine, in which not just banks but hedge funds and other ‘shadow banks’ borrow to finance their trades,” Brown recently wrote. Brown’s scathing critique of the Fed’s monetary solutions further added:

The repo market is a fragile house of cards waiting for a strong wind to blow it down, propped up by misguided monetary policies that have forced central banks to underwrite its highly risky ventures.

Inflation and Asset Bubble Concerns Mount

The Public Banking Institute chairperson is not the only one worried, as two Federal Reserve Bank presidents have expressed “concerns,” seeing a surge in inflation and a growing asset bubble. Boston Fed President Eric Rosengren cited the real estate market as a potential area for a bubble.

Additionally, Federal Reserve Bank of Atlanta President Raphael Bostic told the public: “There’s not a lot that we have left to do to stimulate.” Following the statements from two Fed branch presidents, former Federal Reserve chair Ben Bernanke said if the central bank takes “extraordinary steps,” it could save the economy. Bernanke also detailed that’s what he and the Fed did during the 2008 Great Recession. During a speech delivered in San Diego Bernanke stressed:

A moderate increase in the inflation target or significantly greater reliance on active fiscal policy for economic stabilization, might become necessary.

In addition to the dreary outlook from former and present Fed employees, last week Rabobank executive Philip Marey said he believes the Fed will cut interest rates to zero. Despite Marey’s forecast, the central bank’s board seems reluctant to cut rates again. However, on January 14, the Swiss wealth giant UBS said the Fed will likely cut rates three times in 2020. “We think this tariff damage is going to push U.S. growth down … that’s actually going to trigger three Fed cuts, which is way off consensus, nobody believes that,” Arend Kapteyn, global head of economic research at UBS stated on Tuesday. At the time of writing, CME Group’s Fed Watch tool indicates that the probability of the Fed slashing rates again in 2020 is 50%.

What do you think about the Fed’s capital injections lately? What do you think about them giving funds directly to hedge funds, smaller banks, and securities brokers? Do you think the Fed will cut rates again in 2020? Let us know what you think about the central bank’s monetary schemes in the comments section below.

Image credits: Shutterstock, Wiki Commons, Fair Use, Wall Street Journal, Getty Images, and Pixabay.

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China Issues Digital Currency Guide for Party Cadres

14/01/2020 by Idelto Editor

Understanding a complex subject should be easier with access to educational materials. With blockchain and CBDC now part of Beijing’s political vocabulary, the Communist Party of China (CPC) has issued a guide to digital currencies meant to prepare party officials for upcoming changes in the country’s financial system.

Also read: China Saw $11.4 Billion in Crypto-Based Capital Flight Last Year

Handbook Educates Party Functionaries About the Impact of Digital Currencies

“Digital Currency: A Reader for Cadres” is part of a series of guides on various current topics, from artificial intelligence to blockchain technology, Bloomberg reported. The handbook has been released by the publishing house of the largest newspaper group in China, People’s Daily, and is now in printing for its second edition.

In 200 pages, the guide acquaints readers with important aspects of digital currencies. Its 23 articles cover not only the basics but also more sophisticated matters such as the impact these currencies could have on monetary systems and global finance, the publication details. Noting their goal is to assist CPC cadres in expanding their understanding of the underlying technology, the authors have stated on the cover:

Digital currency is inevitable in the course of history.

The guide comes out as China prepares to complete the development of its central bank issued digital currency (CBDC). The research into the matter started about five years ago but the People’s Bank of China (PBOC) stepped up its efforts after the announcement of Facebook’s Libra project last summer. Also, a Politburo meeting in October revealed that the Chinese leadership wants the country to gain an edge in the blockchain field.

No timetable has been released for the issuance of the sovereign coin yet but according to recent reports by Chinese media, the central bank has completed “top-level design, standard formulation, functional research and development” as well as “joint testing” of the digital yuan. PBOC is now focusing on establishing “stability, security, and control,” the bank’s Digital Currency Research Institute announced.

Launch Date of Digital Yuan Still Unknown

Despite the stated progress, a launch date was not announced. According to previously available information, the Digital Currency Electronic Payment (DCEP) system, as the project is also known, will be introduced with a two-tier approach. PBOC will first issue the currency to commercial banks, which will then distribute it to the public. In December, the 8btc crypto outlet reported that the digital currency will be piloted in Shenzhen, China’s tech hub, and the city of Suzhou.

The trials will be led by the People’s Bank of China and will be conducted with the help of four state-owned commercial banks: Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC), and China Construction Bank (CCB). Three leading telecom operators, China Mobile, China Telecommunication and China Unicom, will also take part, the website detailed.

Parallel to the development of the digital yuan, Chinese authorities have been cracking down on platforms working with decentralized cryptocurrencies, with particular focus on exchanges and companies related to ICO projects. The government has also been busy dealing with serious issues in the traditional financial system, where a liquidity crisis is brewing on the interbank lending market with Beijing intervening to bail out several small banks. The debt-to-GDP ratio of China has reached 255% in the past decade. And the latest symptom of the hurting Chinese economy manifested itself in figures showing a 7.5% drop in passenger car sales last year, the second annual decline in a row.

What do you think about the digital currency guide issued by the Communist Party of China? Tell us in the comments section below.

Images courtesy of Shutterstock.

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