United States-regulated trading and clearing platform LedgerX has released a new type of derivative contract unique to Bitcoin (BTC), according to a blog post published on Feb. 5.
The new product called LedgerX Halving Contract (LXHC) represents a binary option — an option where the payoff is either a fixed monetary amount or nothing — that settles to the estimated next time that Bitcoin halves.
Bitcoin halving is an event that happens roughly once every four years, after which the amount of new Bitcoin created and earned by miners will be cut in half. The last time Bitcoin halved was in 2016, when the reward decreased from 25 BTC to 12.5 BTC.
LedgerX explains that the new derivative contract, “will allow you to get a fixed payoff if the next halving block (#630,000) happens before a certain date and time. If the block is discovered after, the contract expires at zero.” Based on current network conditions, the date of the next halving block is estimated at May 25, 2020.
While binary options are traditionally recognized as gambling since they are essentially a “yes/no” bet, the post points out the uniqueness of Bitcoin in that “there is a fundamental economic risk that is binary.” LedgerX states:
“…imagine you are an oil producer such as Exxon Mobile and know that one day in 2020, the number of barrels of oil you extract will go down by half, forever. But you’re not certain which date that will be. This would materially impact planning for investment and operations. Bitcoin miners face this exact risk approximately every four years for the block reward that they earn.”
In January, LedgerX launched its first Bitcoin price volatility index dubbed LedgerX Volatility Index (LXVX). “The LXVX incorporates the level of fear and uncertainty in the Bitcoin market, and thus can be thought of as the “bitcoin fear index,” in the same way the VIX is commonly referred to as a stock market fear index by market commentators,” the company explained.
LedgerX’s BTC savings product licensed by the U.S. Commodities Future Trading Commission saw its debut in May 2018. The project is purportedly designed to simplify BTC option trading to a basic point-and-click format, so “less sophisticated” bull traders can purportedly potentially get a premium price on their holdings.
