Bloomberg reports that the Tera Group Inc. is seeking approval of a legal framework to allow bitcoin swaps. The derivative device would allow investors to trade payments based on the performance of bitcoin versus that of an established fiat currency.
The terms for a multimillion dollar swap between two U.S. institutions is planned to hedge Bitcoin volatility over a 25-day period, the Summit, New Jersey-based company said in a statement today. Swaps based on Bitcoin are unregulated and the firm is seeking the blessing of the U.S. Commodity Futures Trading Commission so it can offer the trades on its regulated swap-execution facility, the company said.
The creation of a swap framework and the seeking of CFTC approval is a significant indicator of the growing interest in bitcoin in the financial world. Swaps markets are extremely specialized, and exist to allow investor benefit from situations of high volatility. As Leonard Nuara, the president of Tera, told Bloomberg: “It provides a tool for a natural hedge to get relief from the price changes in Bitcoin.”
The company claims that it is already in discussions with the CFTC about the proposal, although it did not reveal a timeline for when the swap framework might be approved. Given that the CFTC and other regulatory agencies are still working out their positions on how bitcoin and related products should be handled, it may be months before Tera Group’s proposal is offered.