CoinFlex, a Roger Ver-backed crypto exchange which was launched earlier this year on February, claims to be the first exchange in the world which offers to close futures contracts in Bitcoin to a cash settlement. Their main target is the Asian retail investors to offer them an environment which avoids price manipulation in Bitcoin. The CEO of CoinFlex Mark Lamb believes that the Bitcoin futures market needs physical settlement because of the harsh Bitcoin price manipulation:
“Professional and retail traders alike are affected by price manipulation in the cash-settled futures market. In physically delivered contracts, anyone long at expiry receives the underlying Bitcoin. There are no formulas involved.”
He also said that contracts that physically deliver Bitcoin at settlement will profit traders who now can be sure that the spot and futures costs are not imposed to being leveraged and that they track the spot Bitcoin cost. Another major issue is that these prices of money repayment contracts which are frequently calculated with a formula which is dependent on the Bitcoin costs on different exchanges, can be easily manipulated, adds Lamb.
As mentioned above, CoinFlex just landed a $10 million funding round from Polychain Capital, Roger Ver, and others. According to Mark Lamb, the company aims to compete with the cryptocurrency industry leader in this field – BitMex. BitMex trades the second most futures contracts with around $2.86 billion in daily volume behind OKEx.
OKEx, on the other hand, believes that a major drawback for the physical settlement is that its very expensive when compared to cash settlements, says Lennix Lai, the financial markets director at OKEx:
“For most users, they do not want to physically settle their futures because it means dealing with fiat currencies, and having the total Bitcoin in hand. [This contrasts with] oil futures trading, whereby physical settlement is a suitable use case, as traders need the actual oil for the settlement. But for cryptocurrency, it is not necessary.”
Both BitMex and OKEx have banned Hong Kong users from their platforms because of regulatory scrutiny.
However, CoinFlex is not the only company which aims for a futures settlement. As reported earlier, Bakkt announced the testing of their physical Bitcoin futures contracts settlement. Through several times of postponing the deadline, Bakkt finally got hold of all the essentially needed regulatory approvals and announced that they will launch on September 23.