LedgerX, a regulated futures exchange based in the United States, has introduced physically settled Bitcoin futures contracts (BTC). This allows investors to receive physical delivery from BTC and some analysts believe that this will amplify their impact on the BTC price.
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How can physical delivery affect the price of Bitcoin?
When Bakkt was first launched with the support of its NYSE parent company, ICE, it received a lot of attention. Most of the interest around the platform surrounded its physical BTC delivery, which means, if institutions want to, they can actually maintain BTC through Bakkt’s secure custody service.
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At the time, Compound’s general counsel, Jake Chervinsky, emphasized that this could potentially affect the price of Bitcoin. He said:
„Also worth noting is the fact that Bakkt will guard and deliver real bitcoins. That means that institutional entries would reduce supply and therefore (perhaps) also increase the price. This is different from other regulated futures markets such as CME and CBOE, which only trade in cash-settled futures.
Physically settled Bitcoin contracts could affect the price of the BTC because it has a real impact on their supply. When investors trade cash-settled futures contracts, they are not buying real BTC to take long-term positions in the asset. This reduces the potential effect on the supply of cryptomoney.
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At the LedgerX futures exchange, investors who open long positions at Bitcoin Circuit can receive physical delivery of the digital asset. The exchange’s order book has full transparency about the depth of the market, allowing institutions to study the market. LedgerX explained:
„Investors can trade out of their position or hold to maturity and, if long, receive delivery from BTC. All orders are executed in our central limit order book, with full price transparency in the depth of the market. Block trades are also printed in the central limit order book.
Increasing the number of futures exchanges that offer physically settled Bitcoin contracts could benefit overall market liquidity. Zach Dexter, the CEO of LedgerX, said:
„Futures have always been part of the company’s roadmap, and we are excited about today’s launch. Futures and options are a large part of the trading landscape and we believe it is important to have a complete set of products listed to enhance the liquidity of the platform and the ability to effectively hedge risk.