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Bitcoin Price Prediction Gone Wrong: $1M Options Call To Be Purged

$50,000 Per Bitcoin (BTC) Forecast Goes Wrong Amid Bear Market

One year ago, amid the peak of 2017’s monumental cryptocurrency bubble, in which everyone and their dog were incessantly discussing Bitcoin, BlockTower Capital, a juggernaut in the crypto investment realm, made a ludicrous bet on the future value of BTC.

This, for those who aren’t in the loop, was the decision to create a $1 million options contract on LedgerX, a CFTC-regulated cryptocurrency platform, that would reportedly fork out $29 million to BlockTower if BTC hit $50,000 by 2018’s end. In other words, if BTC somehow manages to hold above $50,000 on December 28th, BlockTower will see a thirty-fold profit fly its way.

However, according to a recent report from Bloomberg, and as made clear by crypto’s tumult, BlockTower’s ante might not end well, especially as the vehicle’s expiry date rapidly approaches. In fact, for the $1 million options call to be saved from impending doom, BTC will need to rally by upwards of 1,400% in just three weeks, a near-impossibility for any asset, even in an industry as nascent, yet promising as cryptocurrencies and blockchain technologies.

Still, Ari Paul, a managing partner at the America-based BlockTower, told CNBC in December 2017, just days after the creation of the bet, that he purchased the contract while liquidating his firm’s BTC stash. The former University of Chicago endowment manager then explained that the surprising call allowed BlockTower to secure profits, mitigate risk in a market drawdown, and have a potential to score big if BTC surpasses 50k, clearly accentuating the fact that if the options didn’t strike, he wouldn’t be (financially nor emotionally) devastated.

He echoed this sentiment in a tweetstorm made in late-September, in which he stated that “there’s no shame in losing trades,” before accentuating that risk management was a key factor in the creation of the $50,000/BTC by EOY 2018 options call.

BlockTower Still Bullish On Crypto

Although BlockTower’s ambitious wager on the short-term fluctuation of Bitcoin’s value is likely to go awry in a few week’s time, the firm, or at least some of its representatives, are still undoubtedly bullish on crypto.

Speaking with CNBC’s Fast Money segment, Michael Bucella, a partner at the crypto-focused investment firm, did his best to break down the current state of the Bitcoin market, and what’s in its short to mid-term scopes.

Noting that crypto’s bear cycle isn’t as perilous as it seems, Bucella, a former executive at Goldman Sachs‘ Canada branch, drew attention to his theory regarding the interplay between “strong hands” and “weak hands,” the two overarching types of cryptocurrency investors. The BlockTower partner noted that while it would be accurate to assume that weak hands, also known as speculators, are liquidating their holdings to diehards (strong hands), the latter group isn’t rushing to on-ramp free capital.

He explained that crypto’s recent liquidity dry spell, along with market volatility, can be chalked up to the hesitance from strong hands to bulk-buy Bitcoin. Although this statement may seem bearish in and of itself, Bucella added that crypto’s near-year-long “distress cycle” is presumably coming to its culmination, echoing analysts’ cries that the bottom is almost in.

Bucella, while reluctant to forecast where the looming Bitcoin bottom will hit, added that when BTC finds a floor, whether it be at $2,000, $3,000 or otherwise, opportunities to scoop up the asset at low prices will be rather scant.

And in the end, the BlockTower partner explained that the “smartest money” continues to foray into this industry, whether it be the endowments of MIT, Harvard, Stanford, or the countless institutional players that have overtly expressed interest into purchasing cryptocurrencies. Keeping this thought process in mind, Bucella noted that even purchasing BTC at current prices could be a bargain bin deal, especially from a multi-year perspective.

Title Image Courtesy of Alex on Unsplash

The post Bitcoin Price Prediction Gone Wrong: $1M Options Call To Be Purged appeared first on Ethereum World News.

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LedgerX Claims 'Record' July for Bitcoin Options Trading

Bitcoin derivatives trading provider LedgerX says it saw a “record” amount of trading volume over the last two months.

The firm cleared $50 million in derivatives volume in July alone, president and chief risk officer Juthica Chou told CoinDesk. Earlier this month, the firm also executed its largest trade to date for a December $15,000 strike call.

Partly in response to increased client demand, LedgerX launched a new bitcoin purchasing system last month. Called one-click bitcoin, the service acts as a “one-stop shop” for institutional or high net-worth clients to buy bitcoin easily through a federally-regulated platform, Chou said. The service is built on top of the LedgerSavings platform LedgerX debuted in May.

The demand for this type of product is high, Chou said.

“[One-click bitcoin] was born out of a lot of the customer demand that we’ve seen. I think it’s showing that derivatives and options are really useful long-term products and they can offer killer solutions to a wide variety of participants,” she said, adding:

“June was one of the record months for us and July was a record month by far. If you look at how we’ve been doing our transactions, a third of the value has been over the last month, we’ve seen a lot of healthy activity.”

The platform is available to all of LedgerX’s clients, she said, which include roughly 130 institutions as well as high net-worth individuals.

The company has already begun conducting transactions with the system, and one client will see at 15 percent per annum return on their bitcoin for the next six months. This figure will remain steady, even if bitcoin’s price drops or stays stagnant in that period.

Going forward, LedgerX hopes to add ethereum products. The firm is working with regulators to receive approval, but Chou is confident that the company will receive this approval as all of its products are “full collateralized.”

LedgerX image via Piotr Swat / Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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LedgerX Debuts First Bitcoin Savings Account Licensed By CFTC

Trading and clearing platform LedgerX has launched a new Bitcoin (BTC) savings product that is licensed by the US Commodities Future Trading Commission (CFTC), Forbes reported May 15.

The savings product introduced by LedgerX is certified by a CFTC derivatives clearing organization (DCO) license and a swap execution facility (SEF) license. Juthica Chou, Chief Operating Officer at LedgerX said:

“Everything we do requires both the licenses. And a lot of that is intentional, because by making it a package deal we can offer a number of services to our customers in a really clear, vertically integrated way.”

The licenses permit users to earn a yield on their Bitcoin assets. Rather than just “hodling” and hoping that Bitcoin appreciates, investors can earn a fiat-based yield on their BTC by employing what is referred to as a call overwrite technique, wherein an investor deposits BTC into LedgerX, then sells a call option at a slightly longer date, with a higher strike call option.

The project is designed to simplify BTC option trading to a basic point-and-click format, so “less sophisticated” bull traders can potentially get a premium price on their holdings. The product’s interface allows users to choose the implied rate they’re anticipating to earn and the number of BTC they wish to earn the yield on. Chou said:

“This interface will definitely be skewed to the long Bitcoin holders, who will likely only deposit bitcoin and who will want to earn interest off of that Bitcoin.”

According to Forbes, during the past three months, 70 percent of the trade volume of LedgerX has come from options, with an average trade size of $60,000. The options contracts will reportedly be available for a three-month and a six-month duration, while LedgerX charges a transaction fee for each service.

Yesterday, the Chicago Mercantile Exchange launched an Ethereum reference rate and real time index to the US dollar. The rates are offered in partnership with Crypto-Facilities, a UK-based digital asset exchange, that debuted the “first regulated” Ethereum futures last week.

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LedgerX Announces Bitcoin Options Trading Upgrade

Bitcoin derivatives platform LedgerX is launching a new, simplified interface that lets bitcoin investors earn interest on their holdings.

The new service, announced Tuesday, operates similarly to its existing bitcoin call options with a streamlined user face for investors, according to LedgerX president and chief risk officer Juthica Chou.

Chou explained:

“We’re seeing more and more demand for people who want to earn some sort of interest off their bitcoin and lending is not exactly natural to people – especially lending where they earn their interest back in bitcoin. So we’re seeing participants come back to trading.”

Essentially, participants place a bet on what bitcoin’s price will look like at some point in the future. If the price grows to that level within the time period, the participants recoup their investment. In the event that it doesn’t, participants can sell their coins and receive fiat currency from the profit on that sale.

This is “by far the largest trade that we’ve seen people coming in to do,” Chou said. “I would say that more than half our volume has been in this kind of trade.”

“The contract that people are entering into here is such that they’re selling an upside call option, so probably call it [two times] where bitcoin is now. If bitcoin tanks, they still collect the exact same premium and if bitcoin goes up then they end up selling bitcoin at about [two times],” she explained.

Chou added that “overall, I think the volatility is what impacts us … the more [bitcoin’s price] moves, the more fiat [investors] can collect.”

Only eligible contract participants, as defined by the U.S. Commodity Futures Trading Commission, can trade in these call options, however. Users need to undergo “the same [know-your-customer] and application process as standard LedgerX” participants, said Chou.

She concluded:

“I think given the price action people are going to be more and more interested … we’re very excited, because this is something we’ve seen a lot of on the LedgerX platform.”

Zach Dexter, Juthica Chou and Paul Chou image courtesy Juthica Chou

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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LedgerX's Bitcoin Derivatives Trading Is Up 7X Since Launch

Bitcoin trading platform LedgerX has seen a sevenfold increase in volume in the six months following its launch of cryptocurrency derivatives.

Chief operating officer Juthica Chou told CoinDesk that the startup has seen roughly $7.5 million traded weekly through 700 swaps and options contracts. Since the platform launched its derivatives products, it has cleared $130 million notional – meaning the total number of assets traded at their spot price during the time of the transaction.

LedgerX kicked off trading of its regulated swaps and options contracts last October, after receiving approval from the U.S. Commodity Futures Trading Commission in July of 2017. Within its first week, the startup saw 176 contracts traded with a notional value around $1 million, as previously reported.

Since then, average trade volume has grown an average of 40 percent month-over-month, Chou said. Currently, 2,000 contracts are of open interest, with the longest-dated active options being $15,000 and $25,000 strike calls slated to expire in December 2019. In other words, the investors holding those contracts can purchase the assets if bitcoin reaches those levels before next December. However, traders will only make money if bitcoin does actually exceed that level, as previously reported.

Chou said the cryptocurrency market’s recent dip did not have a significant impact on swap and options trading, explaining:

“Significant corrections remind people that there are ways to monetize expected volatility even when price goes down and we’ve seen that reflected in our trading activity. Our sophisticated participants are not just buy-and-hold people, let me put it that way.”

LedgerX has 90 individual and institutional traders making up its participant base, she said. Both younger, relatively newer traders and more traditional ones trade on the startup’s platform.

While LedgerX only trades bitcoin swaps and options, the company is planning to expand, Chou said. Specifically, the startup “plans to add ethereum support in the near future.”

Bitcoin tokens image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ripple's XRP Just Might Be the Next Big Crypto Futures Market

Bitcoin futures may have been launched with tremendous fanfare – XRP futures, on the other hand, not so much.

But in fact, U.K.-based startup Crypto Facilities has been operating a futures market for the world’s third-largest cryptocurrency, developed by blockchain startup Ripple Inc., for almost 18 months now. And while the company’s CEO Timo Schlaefer has been tight-lipped about the product so far, he sees trends in recent data that indicate broader XRP futures adoption may be on the horizon.

“We have pretty good order books,” Schlaefer told CoinDesk, “And we’re in the process of working with some of the large market makers to draw that further.”

Indeed, when bitcoin was still months away from getting its first Commodity and Futures Trading Commission (CFTC) regulated bitcoin derivatives, Schlaefer’s company had quietly partnered with Ripple and launched XRP futures, its second cryptocurrency futures product after bitcoin to be regulated under the UK’s Financial Conduct Authority (FCA).

Later, when Chicago commodities giants Cboe and CME Group opened their first bitcoin futures in December, Crypto Facilities’ own XRP futures were trading $14.2 million in volume a month. And by the time Cboe’s first bitcoin futures contract expired in January, Crypto Facilities’ XRP futures had almost doubled in volume to $24.6 million.

Yet, almost no one outside of the firm’s own pool of investors even knew the futures were being traded, much less with that kind of volume. Now, that appears to be changing with the company on track for another positive month, and others exploring the contracts.

“The liquidity has been growing quite a lot,” Schlaefer said, adding:

“We have seen our volume growing through February and expect March to set a new record.”

Mirroring the price

While Schlaefer wouldn’t reveal the identities of the large market makers the company is currently courting, data he provided exclusively to CoinDesk gives a look into how the offering has been growing – and it largely mirrors the price of XRP itself.

For instance, the volume of cash-settled XRP futures, which the company officially launched in October 2016, were relatively flat from month to month until March 2017.

That’s when XRP futures volume more than tripled to $3.08 million and quadrupled to $12.1 million the following month. Over the same time period, the price of XRP experienced similar growth, rising from $0.03 in April to $0.34 in mid-May, before shrinking substantially.

But then again in January 2018, the volume of futures mirrored XRP’s price increases, jumping to $24.6 million as the price of the cryptocurrency reached a record $3.53.

And according to Schlaefer, while the number of registered investors in XRP futures, between 2,000 and 3,000 people, seems small, he estimates that those investing in the product comprise only about 30 percent of Crypto Facilities’ total number of investors.

With most of those trading falling into the category of retail investors, XRP also represents a growth opportunity for the company, and Schlaefer believes, the industry at large.

“We still want to get them a more diverse user base,” he said. ‘But it’s going in the right direction.”

Continuing momentum

And there’s reason to believe more products could be on the horizon.

Already, CME Group, valued at $55 billion, has set a precedent of working with Crypto Facilities in the build-up to its own bitcoin futures launch.

While a representative of CME Group declined to comment on whether the company is exploring XRP futures, it participated in Ripple’s $55 million Series B investment in 2016. Shortly thereafter, the former head of precious metals and metals options at CME Group joined Ripple as its head of XRP markets, giving Ripple potentially valuable insight into CME Group’s inner workings.

Further, in response to CoinDesk’s inquiry about XRP futures, a Cboe spokesperson reiterated statements from the company’s chief executive, who last year said the exchange was open to adding additional cryptocurrency options.

Lastly, Paul Chou, the co-founder and CEO of LedgerX, a CFTC-regulated bitcoin derivatives provider, said his company was exploring the possibility of XRP futures.

LedgerX launched the first regulated and physically-settled bitcoin derivatives product last year and has since traded $100 million in notional volume.

Still, Chou hinted at what could be reservations that slow adoption.

For example, he said that the company’s decision on whether to add XRP futures will stem primarily from its analysis of XRP’s “concentration of holdings.” Indeed, the reason for LedgerX’s concern reflects apprehension more broadly held within the cryptocurrency community about Ripple Inc. and its control over XRP. For one, Ripple’s employees reportedly hold large amounts of the cryptocurrency.

As such, in response to demand from customers “who are definitely inquiring about XRP,” Chou said, the company established a group to investigate.

In particular, the group is looking into the potential that those that who hold large amounts of XRP could manipulate the price, especially if the futures contracts are settled in cash.

Chou concluded:

“Physical settlement avoids those issues because you are not beholden to some abstract price that might or might not be manipulated. You either want the crypto, or you don’t.”

XRP image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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$1 Mln Bet On Bitcoin In December 2018 – Is It Speculation Or Mania?

Would you bet $1 mln that Bitcoin will hit $50,000 by the end of 2018? According to data from LedgerX, a market for Bitcoin derivatives, one investor has already done just that, purchasing nearly $1 mln in Bitcoin options with a $50,000 call.

LedgerX

What such a bet means is that if this time next year the price is less than $50,000, the options will be worthless and the owner will lose the full $1 mln investment. However, if Bitcoin’s price exceeds $50,000 by next December, the owner of the options will have the right to buy 275 Bitcoins for $50,000 a coin, for a total transaction of about $13.8 mln.

Depending on by how much the price exceeds $50,000 a year from now, the bet could potentially be very lucrative. Although some investors have predicted BTC will eventually reach $1 mln a coin, they remain vague about when exactly.

While unwilling to disclose who placed the options, LedgerX CEO Paul Chou indicated the investor was likely an institution, saying:

“Without a doubt, there are institutions out there that are looking at these types of trades or have done these types of trades. It’s not an individual, let’s put it that way.”

Rampant speculation or emerging stability?

The inclusion of derivatives provides a number of advantages for the Bitcoin market but also opens the door for highly risky trades. Jeff Mahony, CEO of UbiquiCoin told Cointelegraph:

“Derivatives markets are generally favorable for the underlying securities because they provide the opportunity for more sophisticated institutional investors to enter the market, which generally increases price stability. However, it also creates the opportunity for significantly more speculation and the risk of investors trying to “swing for the fences” based on speculation rather than fundamental analysis.”

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CBOE Releases New Details on Bitcoin Futures Contracts

Options exchange CBOE has released early specifications for its planned bitcoin futures product.

In a blog post from Friday, the company published some of the technical details for its futures contract, which will be listed under the symbol XBT – that is, of course, pending approval from U.S. regulators. The development dates back to August, growing out of an initial partnership that saw New York-based exchange startup Gemini (owned by investors Cameron and Tyler Winklevoss) providing data to the Chicago-based CBOE.

It’s a development that adds further fuel to efforts to create trading products tied to the cryptocurrency market. With a futures contract, two parties agree to trade an asset – in this case, bitcoin – at a predetermined time and price. Those involved in the agreement seek to make a profit on the difference between the quoted price and its actual value when the contract expires.

Derivatives exchange operator CME Group is moving to launch its own product within weeks, and startups like LedgerX have been pursuing new marketplaces for the exchange of such contracts.

And although the exact listing date isn’t available, CBOE’s website had other points of interest related to the XBT listing, including the indication that both weekly and quarterly contracts will be available. The listed contract multiplier is 1 BTC, according to CBOE, and the settlements will be paid out in cash.

In detailing the efforts to develop the product, CBOE’s Russel Rhoads wrote that readers may want to avoid trying to predict how futures prices will relate to today’s price, noting:

“The question I am constantly hearing is, ‘How will the futures prices relate to spot bitcoin pricing,’ and the best (and most honest) answer I can give is, ‘I don’t know.’ … Personally I think the best strategy is to see what the market tells us when bitcoin futures are available for trading.”

Rhoads also ran a comparison between the CBOE Volatility Index, its stock market volatility index and bitcoin’s degree of price fluctuation, finding that “they are pretty darn similar.”

Disclosure: CME Group is an investor in Digital Currency Group, CoinDesk’s parent company. 

Image Credit: Ariel Bravy / Shutterstock.com

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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First Long Term LedgerX Bitcoin Option Pegs Price at $10,000 in One Year

LedgerX just initiated its first long-term bitcoin futures option.

Called a Long-Term Equity Anticipation Security (LEAPS), the trade was matched by the platform this morning and is set to expire on December 28, 2018.

Under the terms of the deal, the buyer has the right to buy bitcoin at a price of $10,000 at that date, or almost a 30 percent premium on today’s price.

Yet, because the buyer only makes money if the price is more than $10,000 (called the strike price), the investment can be seen as a reflection of the level of confidence that the price will reach that level by the agreed upon date.

Such long term futures options have long been seen in the industry as a much needed sign of maturity, and could in part help pave the way for even more institutional money to enter the space.

In an exclusive interview with CoinDesk, LedgerX CEO Paul Chou sought to position the milestone as just the first of many more before the cryptocurrency market can truly be considered mature.

Chou said:

“There will be, I expect, a lot more trades down the line. This is the first one, but it at least gives you the first guess from different institutional traders as to what bitcoin’s dynamics will look like from now until 2018.”

The trade

The trade option was listed by LedgerX late Friday night, and to Chou’s surprise, two institutional investors agreed to the terms of the deal just one day later.

Under the terms, the buyer agreed to a price of $2,250.25 for the trade, meaning the seller collects that money if the price is less that $10,000 by the end of next year, and the buyer gets to purchase bitcoin at the strike price if it is higher.

Unlike a futures swap however, the buyer is not obliged to purchase the asset.

“If the price goes to zero, you don’t have to pay $10,000 for it,” Chou said. “But if a year from now it’s at $20,000, then you can exercise your options.”

Based on LedgerX’s own calculations (made using the Nobel-prize winning Black-Sholes financial markets model), the startup believes there is a 25 percent chance that bitcoin will reach that level in the allotted time.

Soft launch

While this is the first LEAPS financial instrument matched by New York-based LedgerX, they’ve been conducting increasingly high trade volumes since their soft launch a month ago.

As reported by CoinDesk, LedgerX traded $1 million in bitcoin derivatives its first week of trading, ending Oct. 20.

Since then, the first cryptocurrency firm to be granted a derivatives clearing organization (DCO) license by the CFTC has posted a $1 million day, a $1.6 million day and on November 15, a record $2.6 million day.

Since LedgerX listed the LEAPS option at 5:30 Friday evening, Chou says they saw an additional $500,000 traded before midnight. “That’s for a holiday week too,” he said. “So we were shocked.” He estimates the company has conducted approximately $16 million in notional bitcoin transactions to date.

While the startups numbers seem to indicated active early interest, legacy institutions such as the Chicago Mercantile Exchange (CME Group) and the Chicago Board Options Exchange (CBOE)  have both recently revealed their own similar plans.

Though Chou hopes to maintain his first-mover advantage, he said there’s no hard date to launch into full operation. Rather, his team wants to make sure the platform scales well beyond the 1 million messages it sends per day before this milestone. He says he’d be “surprised if that takes “more than a month,” concluding:

“But it might be sooner.”

Crystal ball image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.