BlockFi is excited to announce that it has completed the second ever “Exchange for Physical” (EFP) bitcoin transaction with XBTO, facilitated by ED&F Man Capital Markets Inc.
In September 2018, BlockFi became a pioneer in the institutional lending markets for bitcoin by offering one of the first bitcoin financing transactions structured under the ISDA/CSA documentation standard, which has been historically used in traditional FX & derivatives markets. BlockFi’s most recent transaction continues the trend of bringing traditional finance transactions into the crypto trading markets.
CME Bitcoin Futures provide digital asset market participants exposure to bitcoin without having to own any physical bitcoin. This gives market participants the ability to hedge risk or gain exposure to bitcoin. BlockFi is an active futures market participant for yield generation and commercial hedging purposes. An EFP transaction is important to BlockFi as CME Futures are cash settled, meaning at expiration, settlement is accomplished by transferring cash instead of bitcoin.
By leading the industry in transactions like EFPs, BlockFi continues on its mission to build a bridge between traditional financial markets and crypto. The increasing supply of trading products like EFPs will continue to fuel the adoption of crypto into institutional spaces.
What are Bitcoin EFPs?
Exchange for Physical (EFP) transactions are privately negotiated trades between two parties allowing them to simultaneously transfer a Bitcoin Futures positions for physical bitcoin or vice versa. This offers the flexibility and certainty of an over-the-counter (OTC) market, and the counterparty guarantee of an exchange market. The value of an EFP is determined by the differential between the physical asset versus the futures at any given time.
Why use EFPs?
Exchanging Bitcoin Futures for physical bitcoin is more cost effective and less risky than trying to simultaneously sell a future contract on the CME and buy bitcoin on another crypto exchange. EFPs also act as a mechanism to keep the Bitcoin Futures market connected to the spot market, since the CME Bitcoin Futures are cash settled. Firms like XBTO, which also executed the first ever Bitcoin Futures EFP, provide liquidity for such transactions.
What can you expect going forward?
We believe, with the ability to execute EFP transactions, CME futures are more valuable to institutional investors and will result in more liquidity in this market. Futures prices imply rates for bitcoin borrowing and lending, which are the basis for BlockFi Interest Account yields.
– The BlockFi Team