LedgerX, a regulated futures exchange in the U.S., has introduced physically-settled Bitcoin (BTC) futures contracts. This allows investors to receive physical delivery of BTC and some analysts believe this will amplify the impact on the price of BTC.
XBT/USD daily chart. Source: TradingView.com
How physical delivery may impact Bitcoin price?
When Bakkt first launched with the backing of its NYSE parent company ICE, it received significant hype. Most of the interest around the platform surrounded its physical delivery of BTC, meaning, if institutions desired, they could actually hold BTC via Bakkt’s custodial security service.
At the time, Compound general counsel Jake Chervinsky emphasized that it could potentially affect the price of Bitcoin. He said:
“Also noteworthy is the fact that Bakkt will custody & deliver real bitcoin. That means institutional inflows would reduce supply and thus (maybe) increase price too. This is different from other regulated futures markets like CME and CBOE, which only deal in cash-settled futures.”
Physically-settled Bitcoin contracts could affect the BTC price because it has an actual impact on its supply. When investors trade cash-settled futures contracts, they are not buying real BTC to long the asset. This reduces the potential effect on the supply of the cryptocurrency.
On LedgerX’s futures exchange, investors opening long positions in BTC can take physical delivery of the digital asset. The order book of the exchange has full transparency on market depth, enabling institutions to evaluate the market. LedgerX explained:
“Investors can trade out of their position or hold to maturity and, if long, take delivery of BTC. All orders are executed on our central limit order book, with full price transparency on market depth. Negotiated block trades are also printed on the central limit order book.”
An increase in the number of futures exchanges providing physically-settled Bitcoin contracts could benefit the market’s overall liquidity. Zach Dexter, the CEO of LedgerX, said:
“Futures have always been a part of the company’s roadmap, and we are excited about today’s launch. Futures and options are a big part of the trading landscape and we believe it is important to have a complete suite of listed products to enhance platform liquidity and the ability to effectively hedge risk.”
Futures slumped slightly in recent weeks
In recent weeks, especially after Bitcoin’s steep rejection from $12,000, the futures market has slumped. Trading volumes have declined and open interest also saw a noticeable drop, especially on retail investor-oriented platforms.
Despite the short-term decline in the momentum of Bitcoin, institutional activity has steadily soared.
On Sept. 2, Grayscale CEO Barry Silbert said that the firm’s assets under management had hit a record high. Of the $6.3 billion of crypto assets under management, Grayscale Bitcoin Trust accounts for $5.054 billion.
As the institutional activity within the Bitcoin market grows, a diversified suite of products from various regulated firms should further strengthen the infrastructure of the market.