What Happened: Why the First US Physical Bitcoin Futures Haven’t Launched

LedgerX admitted Thursday that it has not launched bitcoin futures, as the firm had previously claimed, after the U.S. Commodity Futures Trading Commission (CFTC) said it had not approved the exchange to do so.

The company previously told CoinDesk it was planning to launch the product on Wednesday. LedgerX would have been the first venue in the U.S. to offer physically-settled bitcoin futures, which are contracts that pay out in the underlying cryptocurrency rather than in cash.

“Not only are they delivered physically in the sense that our customers can get bitcoin after the futures expires, but also they can deposit bitcoin to trade in the first place,” LedgerX CEO Paul Chou told CoinDesk on Monday.

But on Thursday morning, the day after CoinDesk’s initial story ran, CFTC chief communications officer Michael Short said in an emailed statement: “LedgerX has not yet been approved by the Commission.”

Indeed, a look at LedgerX’s data page shows only options and swaps trades that took place on Wednesday, but no futures.

When contacted subsequently by CoinDesk, LedgerX chief operating and risk officer Juthica Chou acknowledged that the company was not trading futures contracts.

She insisted that the prior conversation with her and Paul Chou about a Wednesday launch pertained only to LedgerX’s retail platform, Omni, which she said is actively serving swaps and options products to traders at present.

“We’re still operating, we’re putting the product in front of retail,” she said.

Approval still needed

The CFTC last month approved LedgerX as a designated contract market (DCM), which was one of two approvals the company needed to proceed with the futures launch. The other is an amendment to its derivatives clearing organization (DCO) license. It is currently authorized to clear swaps, but not yet futures.

In the CFTC’s own press release dated June 25 announcing the DCM approval, the regulator noted:

“LedgerX has requested that the CFTC amend its order of registration as a DCO, which limits LedgerX to clearing swaps, to allow it to clear futures listed on its DCM.”

According to CFTC regulations (Title 17 part 39.3), the agency has 180 days to approve or deny a DCO application.

“[The CFTC] said to clear swaps and they said later that [we] should actually clear futures too and … we were waiting essentially for this amendment,” Paul Chou told CoinDesk Thursday.

Juthica Chou appeared to suggest that because this period had passed without an objection from CFTC, the company was under the impression that it was clear to proceed.

“We submitted the amendment on Nov. 8, 2018, it’s been more than 180 days, we don’t know why that’s the case [that it has not been approved],” Chou said, later adding:

“We filed on Nov. 8 and we have email correspondences confirming there were no additional items that they needed for the amendment.”

However, LedgerX needs explicit approval, according to a senior CFTC official.

“Every new or amended DCO application needs to be affirmatively approved by the Commission,” said this official, who did not want to be identified. “The absence of a decision does not constitute approval, and entity self-certification is not an option.”

Final stages?

The regulation does state that “the Commission may stay the running of the 180-day review period if an application is materially incomplete, in accordance with section 6(a) of the Act,” but there is no indication whether the CFTC took this action.

That said, LedgerX’s DCO application “appears to be in the very final stages of the approval process,” the senior official said.

Paul Chou told CoinDesk that there is little difference between swaps and futures products.

“Basically, it’s just a total technicality that a swap and a future are different things and … it’s like, it’s actually a little different,” he said. “The difference between futures and swaps is ridiculous, it’s the same product.”

Marc Hochstein contributed reporting.

Juthica Chou image via CoinDesk archives