US-regulated derivative platform LedgerX has announced the launch of a new class of Bitcoin derivative based on block-halving dubbed the LedgerX Halving Contract (LXHC).
So far, the larger part of cryptocurrency trading is based on financial instrumentation similar to those of the traditional market. However, as the blockchain and the underlying asset classes are an entirely new class of economic streams, developing new types of derivatives are expected, especially with the type introduced by LedgerX leveraging on the uniqueness of block formation and reward halving.
Bitcoin’s code has been programmed to halve block rewards every four years. So far, two block-halving events have occurred since the genesis block was created. The first was in 2012 when the block reward was halved from 50 Bitcoins to 25 Bitcoins per block at block height 210,000; the second was in 2016 when it dropped to 12.5 Bitcoins per block. In total, about 33 block halving events are expected with the last one expected to occur in the year 2141.
The aim of this derivative contract is to allow enthusiasts and gamblers bet on the date when the next block halving to 6.25 bitcoins per block will happen. Accordingly, this is estimated to occur at block height 630,000 and sometime in April 2020.
According to the blog post, the excitement is in the exact date when the halving will occur, it said: “The date the actual block will occur will also intrigue speculators and liquidity providers”, which will have a huge consequence on the dynamics of Bitcoin’s price should it become widely used.
So far, such derivatives as futures, options, and swaps are common within the industry, as has always been the case with traditional financial assets as well. However, the introduction of this derivative class increases the level of risk and uncertainty as a new determinant is introduced – block halving – and no one knows the precise date when it will occur, unlike the counterpart derivatives and this essentially makes its binary a fundamental economic risk.
If this is readily adopted by the crypto community en masse, it may as well “materially impact planning for investments and operations”, LedgerX suggests.
Intriguing enough, this may be another attempt to lure in sophisticated investors with a higher inclination towards binary options. However, for risk-averse investors, the sidelines may be cramped to see how Bitcoin survives the tempest, as this is likely to raise the volatility index for Bitcoin if it is adopted.
It’s been observed that with a new Bitcoin derivative class introduced, the cryptocurrency market takes a jolt. This may as well introduce another bull as with the case of CME and CBOE’s introduction of futures contracts in 2017 – which was first of its kind, and it saw Bitcoin reaching highs of USD 20,000.
Moreover, last year saw price fluctuations when the community expected Bitcoin exchange-traded funds (ETFs) to become a norm within the crypto community. However, when expectations were cut short elucidated by nine rejected ETF applications by the SEC, conversely, the market took a hit.
The onramp towards complex markets continues on the rise, with each provider targeting the institutional class of investors which are perceived to be pivotal to the next uptrend in the crypto market.
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