FTX has already established three-period futures beginning in the third-quarter of 2020. Bitcoin hash rate futures contracts could be useful to Bitcoin miners.
Cryptocurrency derivatives exchange FTX has become the first notable platform to launch Bitcoin hash rate futures contracts. This product helps miners to have coverage against Bitcoin mining difficulty adjustments.
FTX Bitcoin hash rate futures adjust to average Bitcoin mining difficulty over some time. In other words, the approximations represent the total hash rate used to mine Bitcoin. For that reason, FTX said that it is impossible to accurately measure hash rate, the best thing to do is get a rough estimate of block times and difficulty.
The exchange first revealed its plan to launch Bitcoin hash rate futures last August 2019. The product has finally been launched after around nine months of work.
FTX CEO Sam Bankman-Fried stated that the exchange has seen “great interest” in hash rate futures, particularly from miners and related companies. In that sense, he explained that they have been increasing their relationship with mining companies and intermediaries. Now we think that their network is big enough to introduce real flow and interest to these futures.
Three Bitcoin Hash Rate Futures Contracts
The first FTX Bitcoin hash rate futures contract, for the third-quarter of 2020, expires with the average mining difficulty in the period July-September 2020.
Thomas Heller, Director of global business for the F2Pool mining pool, reported that he is excited to see the launch of the product. “Until now, there have been limited mechanisms to cover the risks of mining farms.” He said that users can use FTX hash rate futures to structure various types of financial products for miners.
Heller added that anyone can now participate in the mining ecosystem, even without any hardware. This is because FTX’s third-quarter product is based on the average network difficulty for the entire period.
Furthermore, FTX has also launched Bitcoin hash rate futures for the fourth quarter of 2020 and the first quarter of 2021.
Bitcoin hash rate futures themselves are not a new product. Cryptocurrency brokerage company BitOoda already launched hash rate contracts. Interhash, a partnership between Canaan Creative and market maker GSR, was also seeking to offer derivative products to miners.
However, a currency exchange that launches these types of products would have more liquidity and access to retail investors, compared to a brokerage company, according to an industry expert.
Bankman-Fried also seems to be less concerned about liquidity problems. He says that there are generally a lot of liquidity providers on FTX, and more will probably join shortly.
Darius Sit, Co-founder and partner manager of the cryptocurrency market maker QCP Capital, noted that FTX is not the first exchange to launch Bitcoin hash rate futures. He added that LedgerX has been offering them for almost a year. However, there seems to be no public information about it. Probably, the product has a low open interest.
The launch of the new FTX product happens at an interesting time, just a few days after the third Bitcoin halving, which saw the mining reward drop from 12.5 BTC to 6.25 BTC. The halving is likely to result in a decrease in hash rate and mining difficulty, and thus Bitcoin hash rate futures could prove useful to Bitcoin miners.
By Willmen Blanco