By Andrei Serpik
From the near 700 highs in June to the 270 lows in October, wild price swings have kept business owners and conservative investors from fully embracing the growing payment protocol. While the price has kept steady in the mid 300s for the last three months, it has been riding on low volume and any news can put the price into movement.
Perhaps this is why LedgerX is a welcoming sight to many investors and bitcoin enthusiasts. In late September this New-York startup submitted applications to the U.S Commodity Futures Trading Commission (CFTC), which regulates U.S. futures and options exchanges, to be approved as a derivatives exchange with bitcoin as the underlying asset to be traded. With this approval, LedgerX will become the first bitcoin options exchange sanctioned by the U.S government. The company was founded by Goldman Sachs high-frequency traders and MIT-educated computer scientists who believe that a regulated options exchange will remove some of the price volatility by allowing adopters to hedge against downswings which will in turn promote a more stable bitcoin ecosystem.
This would be huge news for companies like BitPay, a bitcoin processor who instantly converts bitcoin into local currency for its business customers. It makes money by holding on to the bitcoins and selling them for a higher price then what they had bought them for. Currently however, such companies have no protection against down swings, and unless these companies are carful with their reserves, a fast downtrend can completely wipe them out. With the ability to hedge bets on a derivatives market, payment processors could expand while minimizing their potential risk.
With seed money from Google Ventures and $4.5 million in Series A funding led by Lightspeed Venture Capital, LedgerX has begun aggressively lobbying the CFTC to greenlight their application. To be approved, the company will need to show that the underlying market, bitcoin in this case, is not easily manipulated. This might prove to be difficult considering it was only in early October when a $9 million dollar market sell order sent the price pummeling almost 25%. Whether this sell was done by a rookie with too much money or a whale manipulating the price down to gobble up more cheap coins, such price movements mean that the market is vulnerable.
To help persuade the CFTC, LedgerX has hired a high-end Washington lobbying firm as well as Thomas Lewis, a former Ameritrade CEO. They maintain that a regulated derivatives market is going to develop whether the United States likes it or not and it is in the best interest for everybody if it did so in America rather than Dubai or Hong Kong.
Currently the CFTC is requesting public comment on LedgerX’s application and it is unknown when a decision will be reached.
BIO: Andrei Serpik is a recent graduate of Washington University School of Law and a long time bitcoin proponent, enthusiast, and trader. Andrei has been actively trading as well as using bitcoins since early 2012 and has been attending crypto-currency conferences both in California and in St. Louis where he has lived for the last three years. Andrei has also been an active investor in alternative currencies including Litecoin, NameCoin, NovaCoin and DRKcoin. Andrei plans to use his law degree to enter the field of securities regulation with an emphasis on emerging crypto-currency regulation and litigation.
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