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Proposed Market Rules for Cryptocurrency Derivatives Reveal Institutionalization

  • The International Swaps and Derivatives Association or ISDA, said on Tuesday that it was developing common legal standard and templates for derivatives linked to the growing digital asset market.
  • The move by ISDA comes as the first bitcoin-futures based ETF was successfully launched in the U.S. this year and institutional interest in the nascent digital asset class soars.

Just when you thought you couldn’t put the Wild West of cryptocurrencies into a suit and tie, the International Swaps and Derivatives Association or ISDA, said on Tuesday that it was developing common legal standard and templates for derivatives linked to the growing digital asset market.

In a move intended to broader the appeal of cryptocurrencies for institutional investors, ISDA is looking to ensure that its common legal standards are sufficient to cover “potential disruption events.”

One key issue flagged for consideration by ISDA was forks, where a blockchain effectively splits into two branches, either because of disagreements over its development, or as typically is the case, system and software upgrades.

ISDA’s master agreements are widely used as a standardized legal template for most of the world’s derivative trades in bonds, equities, currencies and other traditional financial assets.

Using these templates helps to simplify, streamline and speed up transactions and market participations generally follow ISDA’s guidance on how to adjust contract terms if an unexpected event disrupts a derivative’s performance.

The move by ISDA comes as the first bitcoin-futures based ETF was successfully launched in the U.S. this year and institutional interest in the nascent digital asset class soars.

Last month, bitcoin and ether futures on the Chicago Mercantile Exchange, the only cryptocurrency derivative products that are accessible by institutional investors, saw average open interest soar to US$4.3 billion for bitcoin and US$1.2 billion for ether.

Cryptocurrency derivatives are increasingly the tail that wags the dog (not Dogecoin), with derivatives now representing some 55% of the total cryptocurrency market, according to data from CryptoCompare.

Industry stakeholders, their coffers rich with cryptocurrency takings, are also spending some of their newfound wealth on armies of lobbyists on Capitol Hill, to try and shape regulations surrounding cryptocurrencies to their favor.

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SuperCryptoNews is a global leading blockchain and crypto news provider, covering daily news on the latest tech and trading developments in crypto. We bring you expansive crypto news coverage especially in Asia, with a focus on Singapore, Thailand and Southeast Asia.

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