Noelle Acheson is a veteran of company analysis and CoinDesk’s Director of Research. The opinions expressed in this article are the author’s own.
The following article originally appeared in Institutional Crypto by CoinDesk, a free weekly newsletter for institutional investors interested in crypto assets. Sign up here.
Last week’s kerfuffle over the launch-that-wasn’t of LedgerX’s physically delivered futures platform highlights two very important lessons, one obvious and one less so.
The obvious conclusion is that one needs to tread very carefully when it comes to claiming regulatory approval. LedgerX announced the launch of its retail physically delivered bitcoin futures platform, only to find that the Commodity Futures Trading Commission (CFTC) had not yet approved a necessary amendment to its clearing license. Tensions flared and the launch was subsequently walked back.
The confusion over the licensing process is a hindrance, but an understandable one given the complexity of the new products (physically settled bitcoin futures have many more moving parts than traditional futures, even beyond the custody issue). And the “ask for forgiveness rather than permission” approach to financial innovation is probably going to end up expensive.
Below I want to focus on the less obvious takeaway: the role of regulations in determining eventual market structure, and the danger of unintended consequences.
Apples and oranges and fruit
Obviously, established rules can encourage or discourage the take-up of new financial products. The LedgerX confusion, though, highlights a different type of barrier, also heavily influenced by regulation, but one based on relative risk rather than investor protection.
I’m talking about the difference between swaps and futures.