Bitcoin Halving Binary Contract Introduced By Crypto Firm LedgerX

News | February 6, 2019 By:

Cryptocurrency asset management platform LedgerX has announced that it will be launching a new type of derivatives contract for bitcoin.

LedgerX, backed by Miami International Holdings, is an institutional trading and clearing platform for bitcoin options. It received approval for its platform from the CFTC in July 2017. The license authorizes LedgerX to provide clearing services for fully collateralized digital currency swaps.

The company’s new product, called LedgerX Halving Contract (LXHC), is a binary option – a type of option with a fixed payout in which you predict the outcome from two possible results – that settles to the estimated next time that bitcoin halves. A bitcoin halvening occurs every four years or after 210,000 blocks have been mined. To date, there have been two bitcoin halvings: 2012 and 2016. The next halving event is expected to take place in late May 2020.

“This contract will allow you to get a fixed payoff if the next halving block (#630,000) happens before a certain date and time,” LedgerX said. “If the block is discovered after, the contract expires at zero. The result is an extremely clean binary payoff that is verifiable by all participants — a great demonstration of the value of a public blockchain.”

The company explains that while binary options have traditionally been associated with gambling events, bitcoin offers a unique scenario because there is a fundamental economic risk that is binary.

“To give an analogy, 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,” the company said. “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 4 years for the block reward that they earn.”

LedgerX added that the date the actual block will occur will also intrigue speculators and liquidity providers, as it’s a function of hardware advances, electricity costs, and market dynamics.

A year after the first halving, which took place on November 28, 2012, the bitcoin price rose from below $15 to $1,000. At the time, it was the highest ever recorded price for bitcoin. A year after the 2016 halving, bitcoin also reached another record milestone, rallying to an all-time high of $19,500 in mid-December 2017.