Apparently, bitcoin can now be hedged.
TeraExchange LLC is a company that runs the first regulated trading platform for bitcoins. The company has received approval from the United States Commodity Futures Trading Commission or CFTC to start listing an over the counter (OTC) swap product based on the bitcoin's current market value. This approval by the United States regulatory body signifies the first approval of its kind and marks the bitcoin as a financial product.
Company owners Christian Martin, 49, and Leonard Nuara, 55, are lobbying for the promotion of the bitcoin. Martin had worked at Merrill Lynch & Co. and its parent, Bank of America Corp. for 20 years. Nuara on the other hand, is a lawyer who worked at Greenberg Traurig LLP.
Martin and Nuara have worked for seven long months to develop a U.S. dollar-bitcoin swap contract. They also registered it with the U.S. Commodity Futures Trading Commission.
Owing and trading bitcoins is a big risk since the price dramatically fluctuates and is very volatile. In 2014, the range of bitcoin's price for nine months was from $341 to $915.
According to Martin, "I don't expect anyone to be making markets in bitcoin out two years anytime soon," Market for bitcoins are too volatile and investors or traders do not want to go beyond a hedge of four months.
Using TeraExchange's system, a merchant who is accepting bitcoins as payment can now lock in a certain rate for 30 or 60 days or even as long as four months, depending on the risk appetite of the speculators. Currently, a merchant who accepts bitcoin can actually lose or gain on the value of bitcoin in a span of 24 hours or even intraday alone. Imagine getting paid in bitcoin on Monday and when you sell it on Tuesday, the value has just dropped 10 percent. It could be the other way around though if the market increased by 10 percent. But of course, security is important for the merchant - to be able to lock his earning at the same value that he got.
The hedging platform of Martin and Nuara are currently up and running.
