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Regulators Allow Option Trading On Bitcoin: The First Step Towards Smoothing Volatility

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The U.S. Commodity Futures Trading Commission (CFTC) announced over the weekend that it has issued a registration order to LedgerX LLC (LedgerX), granting it status with the CFTC as a Swap Execution Facility (SEF). These terms are opaque to most, but they are very important if you trade digital currency. It is important because many US based Funds currently are not able to commit capital without a mountain of paperwork and side pocket deals within the funds.  This passage makes it clean, and I fully expect volatility to start to tighten day one when active trading begins.

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The Details

The trading will happen on a non-traditional exchange (not the CBOE) via LedgerX which is an institutional trading platform who have been patiently waiting for full regulatory approval from the CFTC to trade and clear options on Bitcoin. Many portfolio managers have wanted other vehicles that fit into their offering documents so they can commit capital, and the fact that the larger exchanges were outmaneuvered by and upstart is also a surprise.  I think in general the speed with which digital currency is coming into play reflects a softer regulatory environment across all markets.  I still do not understand why the SEC declined the Winklevoss ETF.  It makes no sense – but the SEC is historically a huge fade – ask Bernie Madoff’s clients.

LedgerX is now the first federally regulated bitcoin options exchange and clearing house which will list and clear fully-collateralized, physically-settled bitcoin options for the institutional market.

LedgerX

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Back in May, Ledger Holdings, the parent company of LedgerX, closed $ 11.4 Million in Series B financing. Led by Miami International Holdings Inc. and Huiyin Blockchain Venture Investments, this funding will go to support LedgerX’s plan to develop its regulated exchange and clearing house for bitcoin and other digital currencies.

Just some history, you need to know that on December 16, 2016, Ledger Holdings and Miami International Holdings, Inc. (MIH), announced that MIH had completed an investment in Ledger Holdings. Early investors in Ledger Holdings include Google Ventures and Lightspeed Venture Partners, so these are not neophytes, but historically these have gone to the CME, CBOT or CBOE where they have a pool of liquidity.

It was a bit of luck that the arcane laws related to SEF’s (which are platforms that operate under the CFTC’s regulatory oversight for the trading of swaps), that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized the creation of SEF’s years back. I view this as well thought out on behalf of LedgerX, but I am still flummoxed that the Chicago Mercantile (NYSE:CME) was asleep at the wheel.

What Options Mean for the Market

The conclusion is evident in today’s sell off across the board, and this is a good thing if you want mass adoption of digital currencies.  No one needs 150% implied volatility every day, it will keep a huge part of the market away.  The introduction of options trading for Bitcoin is the first step in smoothing volatility for all digital currencies. Portfolio managers worldwide applaud the ability to participate in a fun exciting asset class, and they get to do this without asking investors to sign additional paperwork – most of the standard agreements for hedge funds refer to approved CFTC or SEC products which opens the floodgates.  Hail Bitcoin Options !! Today is a good day for cryptocurrencies – making positive steps for global adoption.

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2 Comments

2 Comments

  1. embersburnbrightly

    July 11, 2017 at 12:32 am

    Very exciting! Welcome aboard, Steve. 🙂

  2. bitsurfer

    July 11, 2017 at 12:35 am

    Wow, great news! Thanks Steve.

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Analysis

Cryptocurrency Analysis: Ripple Continues Rampage as Litecoin and Ethereum Enter Correction

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Ripple remained in the center of attention in the segment after breaking out to a new all-time high yesterday, and the coin almost doubled in value, climbing above the $0.80 level. The currency concluded a 6-month long consolidation pattern with the move after being the only major on a long-term buy signal in our trend model.

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XRP gave a short-term sell signal today, while turning neutral regarding the long-term setup. Investors now shouldn’t add to their positions, although further gains are still possible, and reducing holdings somewhat is a good idea here. Major support is still found at the prior high near $0.4250 and in the $0.30-$0.32 range.

XRP/USDT, 4-Hour Chart Analysis

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While Bitcoin stagnated, and Bitcoin Cash jumped, Ethereum, Litecoin, Dash, and IOTA has been drifting slightly lower, although the recent gains are still mostly intact, and the basic setup in the segment is unchanged.

Litecoin fell below the $300 level after yesterday’s consolidation, and the coin faced strong selling pressure in the latter half of the session. The currency remains extremely stretched regarding the long-term momentum indicators, and although the short-term uptrend is still intact, a deeper correction is likely in the coming weeks, with key support levels found at $125 and $100, and weaker levels at $260 and $170.

LTC/USD, 4-Hour Chart Analysis

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Analysis

Technical Analysis: Volatility on the Rise Again, as Ripple and Ethereum Hit Targets

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Ripple has been the star of today’s session in the cryptocurrency segment, as the only major coin on a long-term buy signal in our trend model continued yesterday’s break-out, and surged to a new all-time high. The currency cleared the $0.425 level that marked the top in May, and after the more than 6-month long consolidation phase, it promptly neared the $0.50 level.

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While the short-term momentum indicators are now stretched, the coin is still in an encouraging long-term setup, although the best period to buy already passed. The coin could be dragged lower in the case of the expected broad correction in the segment, but we expect XRP to outperform in the coming period, with support levels found at the prior high and below that in the range between $0.30-$0.32.

XRP/USDT, 4-Hour Chart Analysis

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Ethereum has been the other top coin on the rise, as the second largest digital currency surged past the final range projection target of the break-out two weeks ago at $685 in the aftermath of the launch of the BTC futures on Monday. The ETH token is now also on a sell signal on all time-frames, and we advise investors and investors to wait for the next major correction to establish new positions. Support levels are now found at $575, $500, $480, and $400.

ETH/USD, 4-Hour Chart Analysis

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Bitcoin

Trade Recommendation: Ride the Next Rally of Bitcoin

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The profit taking period that saw the Bitcoin market fall from 19,697 to a low of 13,501 in a matter of a few days is almost up. The market appears to have generated a new higher low and will use that level to make its next move up.

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Technical analysis reveals a large reversal pattern in the hourly chart that could signal the end of the correction. In addition, volume has been steadily decreasing. On Coinbase, volume spiked by as much as three times its average value in the hourly chart during the height of selling. In the last seven hours, however, volume has been way below its average indicating that bears have lot ammunition. More importantly, RSI in the hourly chart is far from overbought territory. This gives the market a lot of room to breach resistance at 18,000.

The strategy is to buy the market when it goes above 18,000. With signs of selling exhaustion, bears may not put up much of a fight the next time the pair breaches 18,000 on Coinbase. Also, the market has no stiff resistance above 18,000 so it has a clear path to our target of 22,500.

Hourly Bitcoin Chart on Coinbase

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As of the time of writing, Bitcoin is trading at 17,200.

Summary of Strategy

Buy: breach of 18,000

Support: 17,200, 16,800, and 16,450

Target: $22,500

Stop: Move below 16,450

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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