There comes a moment in the life of every new technology when a light turns on and the mainstream finally accepts it. This moment may have finally come for cryptocurrencies with the opening of the LedgerX clearing and trading platform.
LedgerX received approval last July from the Commodity Futures Trading Commission and offers a variety of cryptocurrency derivatives. About twenty institutional investors — an assortment of hedge funds, investment banks, and other financial entities — have been participating at the exchange, trading bitcoin forward contracts and options.
So far, trading at LedgerX has been light, with only 176 trades executing during the week of October 16-20, with a notational value of around a million dollars. But this still gives cryptocurrency supporters hope that one day soon financial institutions will be trading bitcoins and other cryptocurrencies in large numbers, both for their own accounts and for their customers.
Why? Because LedgerX opens the possibility that cryptocurrency trading will become more liquid and stable. Trading of cryptocurrencies by financial institutions have been held back by the lack of a clearing mechanism, as well as by liquidity problems at the unregulated exchanges, caused by their unorthodox settlement, security, and compliance policies. LedgerX solves all these issues.
Even more encouraging, LedgerX isn’t the only platform out there or on the horizon. Four other companies are either offering or will be offering institutional trading of cryptocurrencies, including Coinbase, DRW, BitGo, and the Cboe Options Exchange. Cboe will even offer index trading, eliminating the need to buy actual cryptocurrency.
These companies and their platforms will make it easier for financial institutions to trade cryptocurrencies, which could lead to more passive investment in them, and higher and more stable prices. They can also attract investors seeking to gain from the volatilities of the market.
A good gauge of how accepted cryptocurrencies are in the mainstream is the GBTC, which is an open-end unit investment trust that owns only bitcoins. Before October, this year it had been trading at a premium of 60 to 120 percent above the value of the currency it holds, which represents the value of owning a regulated financial product with traditional clearing and settlement policies. This month, though, the premium has plummeted to 25%. A zero premium is well within sight, and would signify true acceptance of cryptocurrencies by the mainstream financial community.
As trading increases in the coming months at LedgerX and at other platforms, we’ll see if cryptocurrencies fulfill their promise of mainstream acceptance. But cryptocurrency believers should feel good about their chances.