CoinfloorEx, a unit of the U.K Bitcoin exchange Coinfloor, is gearing up for offering the Asian market physically delivered Bitcoin futures. And it is not afraid of strong competition.
Physically delivered Bitcoin futures is a hot topic these days. Thus Bakkt is planning to launch them soon and Eris Exchange LLC is expected to follow. However, CoinfloorEX — now renamed to CoinFLEX — is ready to take on the big companies.
CoinFLEX’s CEO Mark Lamb promises to offer BTC futures to Asian retail investors already in February. He says that futures contracts will cover not just BTC but also ETH and Bitcoin Cash. The contracts can be leveraged up to 20 times.
Bloomberg predicts that CoinFLEX will become a solid competitor to BitMex co-founded by an ETH ‘admirer’ Arthur Hayes. Both exchanges will operate in Hong-Kong which has recently tightened its grip on cryptocurrencies.
While BitMEX offers leverage of up to 100 times on some of its contracts, Lamb believes that CoinFLEX has its own advantage. That is that “futures traded on the exchange will be physically-delivered.” This means that the owners will receive the underlying cryptocurrency instead of cash. As the market remains unregulated, this might prove to be crucial. After all, there were many claims that cash settling may be susceptible to ill-intent.
“Crypto derivatives could become an order of magnitude larger than spot markets and the main thing that’s holding back that growth is the lack of physical delivery,” said Lamb. “Volumes are reduced because of a problem of trust when it comes to cash-settled trades.”
He went to note that currently “the daily volume of trading in the underlying crypto market is approximately equal to that in derivatives, at around $3 billion.” He added that “futures volumes can be 20 times larger, suggesting there is plenty of room for growth in contracts tied to digital assets.”
Tether — or tether?
What might surprise numerous crypto traders is CoinFLEX’s promotion of Tether. The USD-pegged stablecoin, which is doing moderately well, is controversial, to say the least. The rumor still has it that the coin is not USD-backed. Back in the summer, the audit carried out by a private firm in favor of Tether’s claims left many irritated. The feeling persists, even though Bloomberg points out that the fears “may be unfounded.”
Either way CoinFLEX’s contracts will trade against the stablecoin. At expiry “parties who are short will deliver Bitcoin and receive Tether, while for longs it will be the other way round.” Lamb explained that this system differs dramatically to “rival exchanges where gains and losses are paid out either entirely in dollars or Bitcoin, as a proxy for cash, based on an index price.”
Lamb also elaborated the dangers of the index level approach. According to him, traders resort to a manipulation also known as “banging the close” by aggressively selling and buying assets when the future is about to expire. Obviously, they do it in order to manipulate the settlement price.
CoinFLEX also promised to introduce a contract to trade Tether against USD Coin backed by Circle. Lamb underscored that:
Tether is the most liquid, highest volume stable coin that exists right now and seeing the resolution of recent issues and attestations by banks and outside firms make us confident in using it as a stable coin.
Offshore is better
Bloomberg also emphasizes CoinFLEX’s desire to avoid regulators and tax officers’ excessive scrutiny. Thus, the company will be offshore and “incorporated in the lightly-regulated archipelago Seychelles.” This move is curious, given that Coinfloor has been asking the British authorities for its regulation since 2013.
Lamb, however, believes that being offshore is also beneficial for crypto traders, as it will help broaden the exchange’s reach. He noted:
In order to be a large, global exchange focused on traders, the best way to serve the market is to be offshore. Since crypto is a global audience and being regulated by one country would restrict who we can deal with elsewhere, we have chosen to be offshore in order to maximize our accessibility and the trust traders place in us.
He also hopes that prominent industry players will help secure CoinFLEX’s success. Thus Ver, “an early advocate of the Bitcoin offshoot,” crypto trader Mike Komaransky back CoinFLEX. So do market makers like B2C2, Amber AI Group, and Grapefruit Trading. Bloomberg also points out that the consortium includes Alameda Research, Dragonfly Capital Partners and Global Advisors. The latter is “the parent of a crypto exchange-traded notes issuer.”