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March 24, 2014

Tera Group Brings Framework, Hedge Potential to Bitcoin Trades

Bitcoin trading has proven to be a risky venture these days. In the face of moves like the account freezes going on at the Vircurex exchange, and the bankruptcy filings of the Mt. Gox exchange, it's easy to see why some traders might be a little hesitant to trade in this new investment tool. But Tera Group Inc. has reportedly made some moves to take the teeth out of Bitcoin trading with a new framework and the ability to hedge some of the risk associated.

The Tera Group's new move creates what's described as a “legal template” when it comes to making Bitcoin swaps. As described by the Tera Group's president, Leonard Nuara, the company is out to “bring some structure and some protocol to help the Bitcoin community.” Structure is indeed something the Bitcoin community could use, as the closing price for Bitcoin has swung wildly, ending 2013 at $757.50, but from there going as low as $534.71 and as high as $959.39 just in the course of this year so far.

The Tera Group's legal template, meanwhile, may serve it well as the group goes in search of clearance from the U.S. Commodity Futures Trading Commission that will in turn allow it to trade Bitcoin contracts as part of its swap-execution systems. It's currently handling a swap between two institutions in the United States as it stands, at last report, so having the framework in place to carry out more operations with Bitcoin may prove useful for the company.

But the Tera Group isn't the only one looking to make derivatives out of Bitcoin; George Samman's BTC.sx site was part of a growing group of platforms trading in Bitcoin price swings, and trading there alone reached over $35 million until the Mt. Gox shutdown required BTC.sx to suspend trading while it looked for another trading partner. This has given lawmakers something of a challenge as well, as the Commodity Futures Trading Commission (CFTC) is looking into how to oversee such derivatives, or even if the group should do so at all. Currently the CFTC is looking at whether or not Bitcoin and the like meet the definition of a commodity, and some reports suggest that it may well ultimately qualify as a derivative.

Bitcoin is already a volatile platform, and though the trading framework proposed by the Tera Group might well bring a little order to its otherwise disordered trading platform, to turn around and create derivatives of the product makes an even more volatile offering. After all, derivatives trading is an even wilder pursuit than dealing in the commodity in question, so it may well be that the CFTC will simply consider the whole affair a kind of “do at your own risk” sort of venture and allow traders to take the desired risks accordingly.

In the end, only time will really tell just where the field of Bitcoins and Bitcoin futures trading goes, but it's safe to say that neither will really be going away any time soon. That's going to make new opportunities for astute traders, and new opportunities for losses for some others.




Edited by Alisen Downey




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