LedgerX, the United States- regulated trading and clearing platform launches a derivative contract unique to Bitcoin (BTC). Dubbed as LedgerX Halving Contract (LXHC), it is a binary option that is based on the upcoming Bitcoin halving in 2020.
According to a blog post published on Feb. 5, the product is an option where the payoff is either a fixed monetary amount or nothing, that settles to the estimated next time that Bitcoin halves.
Bitcoin Halving is an event that happens once every four years. The event halves the amount of new BTC created and earned by miners. The 2016 halving reduced the reward from 25 BTC to 12.5 BTC. To know the plausible effect on Bitcoin halving, check out this link.
LedgerX Halving Contract
Explaining the new derivative contract LedgerX stated:
“It will allow you to get a fixed payoff if the next halving block (#630,000) happens before a certain date and time. If the block is discovered after, the contract expires at zero.”
According to the current network conditions, the next halving block is estimated to be on May 25, 2020. Binary options are recognized traditionally as gambling since they are essentially a “yes/no” bet. The post notes that the uniqueness of Bitcoin in that “there is a fundamental economic risk that is binary.” LedgerX states:
“...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. 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 four years for the block reward that they earn.”
LedgerX launched its first Bitcoin price volatility index named, LedgerX Volatility Index (LXVX) in January. The firm explained at the time:
“The LXVX incorporates the level of fear and uncertainty in the Bitcoin market, and thus can be thought of as the “bitcoin fear index,” in the same way the VIX is commonly referred to as a stock market fear index by market commentators.”