Coinfloor, UK based cryptocurrency exchange operator, is going to enter the bitcoin futures market and become the first exchange for digital assets to include physically delivered bitcoin futures contracts.
Coinfloor is London-based Bitcoin exchange founded with a focus on trust, security and reliability. Set up in 2013, Coinfloor aims at creating a safe and accessible place to trade and invest in bitcoins. In 2015, Coinfloor established the first exchange-backed Bitcoin Marketplace Coinfloor Market. The exchange has a daily trading volume of about $5 million, with its biggest trading pair being BTC/GBP.
Coinfloor is joining a number of other companies to offer such product to their customers, being at least the fifth company to provide bitcoin futures. Bitcoin futures are already offered by some traditional futures exchanges run by Cboe Global Markets Inc and CME Group Inc. But they are cash settled, meaning the actual cryptocurrency does not change hands. Unlike its competitors, Coinfloor will offer physically settled futures contracts. When the contract is set to expire, the actual asset being traded will be delivered (in this case, bitcoin).
According to Mark Lamb, CEO of Coinfloor, the product came in response partly because of demand from some of the exchange’s customers.
“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,” Lamb said.
Bitcoin futures contracts will be offered through a trading platform dubbed CoinfloorEX. The first physically delivered contract launches in April this year.
Bitcoin futures contract are no different from ordinary contracts of the kind excerpt that “digital character” of the underlying asset. Bitcoin futures are cash settled, meaning no bitcoins actually change ownership when a contract expires, which allows large investors to put their money into bitcoin without actually buying it. The instrument allows traders to speculate the digital currency’s price, which may go up or down in one, two or three months.
The first exchange to introduce bitcoin futures and offer an opportunity for investors to embrace the digital currency market via a regulated platform was CBOE.
The concept of bitcoin futures is controversial, with the U.S. Commodity Futures Trading Commission announcing it would work on a “heightened review process” for any further futures contracts after receiving pushback on the existing products.
Mark Lamb detailed the problems that many proprietary trading firms and large investors have with the cash settled process and said that it can be too easily manipulated by moving the prices of the indexes or auctions on spot exchange.
To trade in Bitcoin safely, Coinfloor Market established a secure environment for retail investors. Buyers are provided with a direct interface to a vetted Coinfloor Market Broker who can directly stream Bitcoin to Sterling and vice versa from the Coinfloor Exchange.
Mark Lamb compared the model of Coinfloor Market to the start of the NYSE as “committed to a decentralized network of brokers backed by a centralized exchange, Coinfloor is the first institution in the Bitcoin industry to mirror this proven model.”
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