Ripple’s XRP could be the next big crypto futures market

Bitcoin futures may have hit the market with a lot of noise – XRP futures, however, not so much.

In fact, the British startup Crypto Facilities has been operating a futures market for the third largest cryptocurrency in the world for almost 18 months, which was developed by the blockchain startup Ripple Inc. And while the company’s CEO, Timo Schlaefer, has been hushing up the product so far, he sees trends in recent data that suggest a broader rollout of XRP futures is on the horizon.

“We have pretty good order books,” Schlaefer told CoinDesk, “and we are in the process of working with some of the big market makers to improve that further.”

When Bitcoin was months away from receiving its first Commodity and Futures Trading Commission (CFTC) regulated Bitcoin derivatives, Schlaefer’s company had tacitly partnered with Ripple to launch XRP futures – its second cryptocurrency futures -Product based on Bitcoin that is regulated under the UK Financial Regulatory Authority (FCA).

Later, when Chicago commodity giants Cboe and CME Group opened their first Bitcoin futures in December, Crypto Facilities’ own XRP futures were trading at $ 14.2 million per month. And by the time Cboe’s first Bitcoin futures contract expired in January, Crypto Facilities’ XRP futures had nearly doubled to $ 24.6 million.

But only a few outside of their own investor pool knew that the futures were being traded, let alone with this volume. Now that seems to be changing as the company has another positive month on the way and others are investigating the contracts.

“The liquidity has grown strongly,” said Schlaefer and added:

“We saw our volume grow through February and expect March to set a new record.”

Mirror the price

While Schlaefer does not reveal the identity of the big market makers the company is currently promoting, data he has made exclusively available to CoinDesk gives an insight into how the offering is evolving – and it largely reflects the price of XRP itself.

For example, the volume of cash-settled XRP futures, which the company officially launched in October 2016, was relatively constant from month to month through March 2017.

At that point, XRP futures volume tripled to $ 3.08 million and quadrupled to $ 12.1 million the following month. Over the same period, the price of XRP saw similar growth, rising from $ 0.03 in April to $ 0.34 in mid-May before shrinking significantly.

But in January 2018, the volume of the futures reflected the price increases of XRP, rising to $ 24.6 million when the price of the cryptocurrency hit a record $ 3.53.

And while the number of registered investors in XRP futures, between 2,000 and 3,000 people, seems small, Schlaefer estimates that those who invest in the product make up about 30 percent of the total number of investors in Crypto Facilities.

With most of these traders falling into the retail investor category, XRP also represents a growth opportunity for the company, and Schlaefer believes the industry as a whole is.

“We still want to give them a more diverse user base,” he said. “But it’s going in the right direction.”

Sustained momentum

And there is reason to believe that more products may appear on the horizon.

The $ 55 billion CME Group has already set a precedent for working with Crypto Facilities ahead of their own launch of Bitcoin futures.

A representative from CME Group declined to comment on whether the company is specifically exploring XRP futures, but participated in Ripple’s $ 55 million Series B investment in 2016 by its head of XRP markets.

Cboe was also non-committal in answering inquiries. In response to CoinDesk’s inquiry about XRP futures, a Cboe spokesperson reiterated what the company’s chief executive officer said last year that the exchange was open to adding additional cryptocurrency options.

But it can be use case focus startups that are the first to finally embrace XRP.

Paul Chou, co-founder and CEO of LedgerX, a CFTC-regulated bitcoin derivatives provider, said his company is exploring the possibility of XRP futures. LedgerX launched the first regulated and physically settled Bitcoin derivative product last year and has since traded a nominal value of $ 100 million.

Future manipulation

Still, Chou indicated reservations that could slow adoption.

For example, he said the company’s decision on whether to add XRP futures will primarily result from its analysis of the “concentration of stocks” of XRP.

In fact, the reason for LedgerX’s concern reflects the concern that is widespread within the cryptocurrency community about Ripple Inc. and its control over XRP. For one, Ripple’s employees reportedly hold large amounts of the cryptocurrency.

In response to inquiries from customers “who are definitely inquiring about XRP,” said Chou, the company created a group to investigate.

In particular, the group examines the potential that those who hold large amounts of XRP could manipulate the price, especially if the futures contracts are settled in cash.

Chou concluded:

“The physical settlement avoids these problems because you are not tied to an abstract price that may or may not be tampered with. Either you want the crypto or you don’t. “

XRP image via Shutterstock

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