Turbulence at the #1 Bitcoin SEF in the World 

Thom Thompson

Thom Thompson


In the middle of Monday afternoon, the board of directors of LedgerX Holdings announced with a press release that each in the husband and wife team of Paul and Juthica Chou had been put on administrative leave from their roles as CEO and president, respectively. No reason was given.  

In a possibly separate development, this morning trading data for last Thursday through Sunday (December 5 to 8) were missing from the LedgerX website. Wednesday’s data were there and they looked surprisingly good given the SEF’s (swap execution facility) track record over its nearly two years of trading. 

According to a LedgerX employee contacted on Monday, the missing data have nothing to do with the changes in the executive suite. (Later on Monday, even more days’ information was missing from the website.)

Apparently, LedgerX began trading mini-sized contracts a week ago. Each mini contract is based on one one-hundredth of a single bitcoin. At least until recently, LedgerX contracts called for the delivery of a single bitcoin. The CFTC website shows that the agency officially received LedgerX’s notice about the fees for its mini-bitcoin products last Friday, December 6. The notice was dated December 3 and corresponded to the new contracts that were launched the previous day, December 2. The December 6 posting is the earliest mention of LedgerX’s mini-bitcoin swap contracts on the CFTC’s website. 

According to the CFTC’s website, the agency did not officially receive earlier notices to it from LedgerX since there is no entry on the website for them. At the same time. LedgerX posts on its website copies of product certifications for both the new day-ahead swaps and the new day-ahead options dated November 21. Either the notices did not reach the CFTC or the commission did not accept them. 

The CFTC declined to comment. The LedgerX employee only confirmed that the trading system is fully operational and that issues with data availability are being worked on. The employee did not say whether the missing data were being recalibrated or modified in light of the change to or back from the “mini-fication” of LedgerX’s swaps contracts.  

Larry E. Thompson, earlier a general counsel at the Depository Trust Clearing Corporation, is serving as interim CEO and lead director of the parent company Ledger Holdings. 

LedgerX offers trading and clearing of bitcoin day-ahead forwards and bitcoin commodity options, both of which call for delivery of physical bitcoin against a U.S. dollar purchase. LedgerX promotes its status as a regulated trading platform and emphasizes that its day-ahead swaps provide a regulated, transparently priced alternative to spot trading on cryptocurrency platforms.   

Shortly after its launch in 2017, someone demonstrated the viability of the platform with a sale of 215 one-year call options on bitcoin struck at $50,000. The premium paid for the options totalled about $1 million. The purchaser of the options was reported at the time to be BlockTower Capital, a cryptocurrency investment firm. The options expired out of the money.

Despite grabbing headlines early on, bitcoin trading on LedgerX has had disappointingly low volumes over the past two years. Under its founders, Paul and Juthica Chou, the platform applied to the CFTC to trade futures as a designated contract market (DCM). A DCM registration provides access to all potential futures customers. A SEF can only permit eligible contract participants, a much smaller number of people and businesses, to trade.

In July, LedgerX butted heads publicly with the CFTC when it told CoinDesk that it would presently launch futures trading on the same platform with its swaps. The CFTC had granted the DCM license to LedgerX but it had not lifted its original proscription against LedgerX’s clearinghouse clearing futures. LedgerX’s November 2018 application was still pending when it revealed its launch intentions. Possible regulatory issues in LedgerX’s futures clearing application have not been made public.  

The CFTC registered LedgerX as a SEF as well as a clearinghouse in 2017. When LedgerX launched that November, it was the first regulated U.S. entity to offer physically delivered bitcoin derivatives. It followed the ill-fated Tera Exchange, another SEF, which had been charged with wash trading in its bitcoin index futures, first traded in 2014. Tera exchange is now dormant. The Bitcoin platform Seed CX’s 2016 SEF registration lapsed earlier this year without it having ever traded any bitcoin derivatives – or industrial hemp swaps, for that matter.  



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