Coin Futures and Lending Exchange (CoinFLEX), a Hong Kong-based crypto exchange, has announced that it plans to provide future contracts for bitcoin (BTC), bitcoin cash (BCH), and Ethereum (ETH) with 20x leverage. All future trades on the exchange will be physically delivered, implying that when the contracts expire, holders will be paid the underlying cryptocurrency instead of cash.
Coinflex, launched in February 2018, is a spin-off from the oldest cryptocurrency exchange, Coinfloor (UK). It is co-owned by notable industry investors such as Bitcoin Cash Evangelist Roger Ver, B2C2, Dragonfly Capital, Trading Technologies, Mike Komaransky, and others. It will become one of a few exchanges in the world to offer cryptocurrency derivatives to retail investors. The contracts will start in February, according to a Bloomberg report published on Jan. 7.
The plans to introduce physically delivered futures for BTC has also been brought forward by exchanges like Intercontinental Exchange Inc., the owner of New York Stock Exchange and Eris Exchange (Chicago). Another such exchange backed by the ICE Inc., Bakkt raised $182.5 million on New Year’s Eve from a consortium of high profile investors, as it edges closer to the launch of its Bitcoin futures market in the first quarter of 2019.
CoinFLEX’s chosen compensation mechanism is advantageous in the sense that it breeds transparency as the process can’t be manipulated. This transparency will ensure more confidence in the crypto market that still suffers from regulatory uncertainties.
Coinflex chief executive officer Mark Lamb is confident his company has the capacity to gain market share in the era of digital currency derivatives. In an interview to Bloomberg he said:
“Crypto derivatives could become an order of magnitude larger than spot markets and the main thing that’s holding back that growth is the lack of physical delivery. Volumes are reduced because of a problem of trust when it comes to cash-settled trades.”
“Tether (or USDT, the USD- pegged stablecoin) is the most liquid, highest volume stablecoin that exists right now and seeing the resolution of recent issues and attestations by banks and outside firms make us confident in using it as a stable coin,” Lamb explained. This is because CornFLEX’s contracts will be traded against tether which means, at expiry, parties who are short will deliver bitcoin and receive tether, while the reverse is also true.
Lamb claimed that futures volumes could reach as high as $60 billion per day compared to the current $3 billion daily trading volume in the crypto market. He further indicated that the new exchange will be incorporated in the digital currency-friendly Seychelles, promoting its trade across the world with less hassle.
“In order to be a large, global exchange focused on traders, the best way to serve the market is to be offshore. Since crypto is a global audience and being regulated by one country would restrict who we can deal with elsewhere, we have chosen to be offshore in order to maximize our accessibility and the trust traders place in us.” Lamb stated.
Bitmex, being one of the world’s largest digital asset trading platforms and also having a sizable presence in Hong Kong is one of the biggest competitors that CoinFLEX is about to face. Bitmex was co-founded by former Citigroup trader Arthur Hayes. It offers leverage of up to 100x on some of its contracts.