Menu
Swap agreement aims to protect Bitcoin holders from the next crash

Swap agreement aims to protect Bitcoin holders from the next crash

A framework for Bitcoin derivatives seeks to guard against price swings

Businesses that permit Bitcoin transactions may soon have a way to protect themselves from drops in the digital currency's value.

Tera Group, a financial derivatives marketplace, announced Monday what it calls the first standardized agreement for Bitcoin swaps, designed to let businesses and investors enter into a contract to guard against swings in Bitcoin's value. The group is eyeing a full-fledged exchange for the agreements, which would be regulated on the U.S. Commodity Futures Trading Commission, if approved.

Tera hopes to bring derivatives contracts, an established instrument for hedging risks in the greater financial sector, to Bitcoin. The contract would be used to reduce the risk large businesses or financial institutions face while making transactions in the digital currency, which has seen wild swings.

Under the contract, an online retailer such as Overstock or TigerDirect could enter into an agreement with an investor or financial group for a transaction at a specified Bitcoin exchange rate. The seller or business would pay a fee to the backer at the time of initial transaction. After a certain period of time set forth in the contract, if Bitcoin's value had dropped, the backer would pay the merchant the difference.

As a first-run, there is currently one such swap agreement between two undisclosed parties, for a single multimillion dollar transaction, Tera said.

Tera is seeking permission from the CFTC to provide the swap instrument for trading on a regulated marketplace, along with other swap agreements operated by its exchange arm. The CFTC did not immediately respond to a request for comment on its plans for offering such a tool.

Such a swap agreement could lead to "greater acceptance of Bitcoin in the marketplace," said Leonard T. Nuara, president of Tera's exchange arm, the Tera Exchange.

Tera's move to add more safeguards into Bitcoin comes as financial regulators take an interest in the currency. In New York, financial regulators recently said they would be accepting applications for virtual currency exchanges in that state, as they seek to learn more about the risks and commercial applications of the technology.

Bitcoin still faces an uncertain future as governments in other countries take a more critical view, and vulnerabilities in the underlying technology become known. The collapse of Mt. Gox, once the most prominent exchange, showed how vulnerable the system could be to cyberattacks and possibly theft.

Tera Group, which is based in Summit, New Jersey, operates a number of other interest rate swaps and credit default swaps through its exchange arm.


Follow Us

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags business managementinternetbusiness issuesanalyticse-commercefinancial resultsInternet-based applications and servicesFinancial regulation and complianceTera GroupOverstock

Featured

Slideshows

Meet the leading female front runners of the Kiwi channel

Meet the leading female front runners of the Kiwi channel

Reseller News honoured the leading female front runners of the New Zealand channel at the 2018 Women in ICT Awards (WIICTA) in Auckland. The awards honoured standout individuals across seven categories, spanning Entrepreneur; Innovation; Rising Star; Shining Star; Community; Technical and Achievement.

Meet the leading female front runners of the Kiwi channel
Meet the top performing customer-centric Microsoft channel partners

Meet the top performing customer-centric Microsoft channel partners

Microsoft honoured leading partners across the channel following a year of customer innovation and market growth in New Zealand. The 2018 Microsoft Partner Awards recognised excellence within the context of the end-user, spanning a host of emerging and established providers.

Meet the top performing customer-centric Microsoft channel partners
Reseller News launches new-look Awards at 2018 Judges’ Lunch

Reseller News launches new-look Awards at 2018 Judges’ Lunch

Introducing the Reseller News Innovation Awards, launched to the channel at the 2018 Judges’ Lunch in Auckland. With more than 70 judges now part of the voting panel, the new-look awards will reflect the changing dynamics of the channel, recognising excellence across customer value and innovation - spanning start-ups, partners, distributors and vendors.

Reseller News launches new-look Awards at 2018 Judges’ Lunch
Show Comments