US-regulated swap execution facility and derivatives clearing organization LedgerX has released a new Bitcoin derivatives contract, according to the firm’s blog post published February 5.
Dubbed the LedgerX Halving Contract (LXHC), the new product represents a clean binary option that settles with either a fixed payoff or nothing, according to the estimated date and time of the next Bitcoin halving block.
Bitcoin halving is the 50 percent reduction in block rewards on the Bitcoin network that takes place once every four years. The last time Bitcoin halved was back in 2016, when the amount of new Bitcoin earned by miners was decreased from 25 BTC to only 12.5 BTC.
According to LedgerX, the new Bitcoin derivatives contract “will allow you to get a fixed payoff if the next halving block (#630,000) happens before a certain date and time. If the block is discovered after, the contract expires at zero.” As estimated, the next halving block is expected to happen on May 25, 2020.
While binary options are traditionally associated with gambling, Bitcoin is considered unique in the sense that “there is a fundamental economic risk that is binary.”
As LedgerX elaborated:
“…imagine you are an oil producer such as Exxon Mobile and know that one day in 2020, the number of barrels of oil you extract will go down by half, forever. But you’re not certain which date that will be. This would materially impact planning for investment and operations. Bitcoin miners face this exact risk approximately every four years for the block reward that they earn.”
Prior to the release of LedgerX’s Bitcoin derivatives contract, the firm has also launched its first price volatility index for Bitcoin called LedgerX Volatility Index (LXVX).
As the company detailed in an announcement earlier in January:
“The LXVX incorporates the level of fear and uncertainty in the Bitcoin market, and thus can be thought of as the “bitcoin fear index,” in the same way the VIX is commonly referred to as a stock market fear index by market commentators.”
In May 2018, LedgerX has also unveiled its first CFTC-licensed BTC savings product reportedly developed in an effort to streamline BTC option trading by providing a basic point-and-click format, so that novice bull traders can earn a premium price on their crypto holdings.