Swap agreement aims to protect Bitcoin holders from the next crash

A framework for Bitcoin derivatives seeks to guard against price swings

Businesses that permit Bitcoin transactions may soon have a way to protect themselves from drops in the digital currency's value.

Tera Group, a financial derivatives marketplace, announced Monday what it calls the first standardized agreement for Bitcoin swaps, designed to let businesses and investors enter into a contract to guard against swings in Bitcoin's value. The group is eyeing a full-fledged exchange for the agreements, which would be regulated on the U.S. Commodity Futures Trading Commission, if approved.

Tera hopes to bring derivatives contracts, an established instrument for hedging risks in the greater financial sector, to Bitcoin. The contract would be used to reduce the risk large businesses or financial institutions face while making transactions in the digital currency, which has seen wild swings.

Under the contract, an online retailer such as Overstock or TigerDirect could enter into an agreement with an investor or financial group for a transaction at a specified Bitcoin exchange rate. The seller or business would pay a fee to the backer at the time of initial transaction. After a certain period of time set forth in the contract, if Bitcoin's value had dropped, the backer would pay the merchant the difference.

As a first-run, there is currently one such swap agreement between two undisclosed parties, for a single multimillion dollar transaction, Tera said.

Tera is seeking permission from the CFTC to provide the swap instrument for trading on a regulated marketplace, along with other swap agreements operated by its exchange arm. The CFTC did not immediately respond to a request for comment on its plans for offering such a tool.

Such a swap agreement could lead to "greater acceptance of Bitcoin in the marketplace," said Leonard T. Nuara, president of Tera's exchange arm, the Tera Exchange.

Tera's move to add more safeguards into Bitcoin comes as financial regulators take an interest in the currency. In New York, financial regulators recently said they would be accepting applications for virtual currency exchanges in that state, as they seek to learn more about the risks and commercial applications of the technology.

Bitcoin still faces an uncertain future as governments in other countries take a more critical view, and vulnerabilities in the underlying technology become known. The collapse of Mt. Gox, once the most prominent exchange, showed how vulnerable the system could be to cyberattacks and possibly theft.

Tera Group, which is based in Summit, New Jersey, operates a number of other interest rate swaps and credit default swaps through its exchange arm.

Join the Good Gear Guide newsletter!

Error: Please check your email address.

Tags Overstockbusiness issuesInternet-based applications and servicese-commerceTera Groupfinancial resultsbusiness managementFinancial regulation and complianceinternetanalytics

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Zach Miners

IDG News Service
Show Comments

Essentials

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Kathy Cassidy

STYLISTIC Q702

First impression on unpacking the Q702 test unit was the solid feel and clean, minimalist styling.

Anthony Grifoni

STYLISTIC Q572

For work use, Microsoft Word and Excel programs pre-installed on the device are adequate for preparing short documents.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?