Summit, N.J.-based Tera Group may be cooling its heels for a while, as Bitcoin regulation is still in the earliest of stages. Many in government still aren't sure which agency or agencies are responsible for regulating Bitcoin.
Tera already has two U.S. institutions lined up for what would be the world's first Bitcoin-based derivative transaction. The multi-million dollar deal would hedge Bitcoin's exchange rate for 25 days.
The company can perform such transactions privately, although as derivatives they will need to be reported to the U.S. Commodity Futures Trading Commission (CFTC).
But what Tera really wants is to be able to offer Bitcoin swaps publicly on its TeraExchange, which would require CFTC approval.
"The infrastructure and regulatory protocols already exist in the conventional OTC swaps markets to support these hedging instruments. [...] Regulatory approval is crucial to the long-term growth of the market utilizing bitcoin," Leonard Nuara, the president of Tera, told CoinDesk.
The CFTC, however, has not yet decided whether it has jurisdiction over Bitcoin, much less how they plan to regulate the digital currency.
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Swaps Just the Latest Bitcoin News Showing Interest from Pros
The framework Tera has created follows the conventions outlined by the International Swaps & Derivatives Association, a trade body for the world's swap dealers.
In a swap, investors, companies, and institutions can exchange one type of payment for another. A Bitcoin swap allows people holding the digital currency to hedge against sudden drops in Bitcoin prices, while speculators could bet on its rise or fall.
"We as a company are trying to bring some structure and some protocol to help the Bitcoin community," Nuara told Bloomberg News. "It provides a tool for a natural hedge to get relief from the price changes in Bitcoin."
The move by Tera to create digital currency swaps is another Bitcoin news development showing that interest from major players in the financial world is steadily increasing. Last week Fortress Investment Group, Benchmark Capital, and Ribbit Capital said they were buying stakes in Bitcoin hedge fund Pantera Bitcoin Partners LLC.
And SecondMarket, which already operates a Bitcoin hedge fund for wealthy investors, said it plans to open it up to retail investors before the end of the year, again pending the decisions of regulators.
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Tera Group Hopes to Offer First Bitcoin Swap
- Bloomberg News:
Bitcoin Swaps Near Reality as Tera Creates Legal Framework