Attendees wait on line to enter the Inside Bitcoins conference in New York, U.S., on April 7, 2014.
“Everyone else is 25 and good-looking,” Nuara says.
The graybeards are trying to help bitcoin grow up. Their company, TeraExchange LLC, runs the first regulated trading platform where
people can shed some of the risk of owning bitcoins, Bloomberg Markets will report in its November 2014 issue.
More from the November issue of Bloomberg Markets:
And there’s a lot of risk to owning bitcoins. Imagine your
business accepts it, and on Friday, Feb. 21, you made a big sale. You
didn’t sell your bitcoins for dollars that same day. On Monday, you
found the value of your bitcoins had plunged 20 percent during the
weekend. That’s why Martin and Nuara are bringing an old-fashioned idea to the hip new currency: hedging. They worked for seven months to develop a U.S. dollar-bitcoin swap contract and register it with the U.S. Commodity Futures Trading Commission.
Now, a merchant looking to lock in today’s bitcoin price can use TeraExchange’s system to find a buyer willing to pay that price in 30 days or 60. So far, the buyers -- usually bitcoin-focused hedge funds or other speculators -- are willing to go out about four months. Beyond that, the currency is too volatile. In the first nine months of 2014, it has ranged from $341 to $915.
“I don’t expect anyone to be making markets in bitcoin out two years anytime soon,” Martin says.
Martin and Nuara are old school. Martin spent 20 years at Merrill Lynch & Co. and its parent, Bank of America Corp. Nuara, a lawyer, worked at Greenberg Traurig LLP.
Young Guns
Some of the young guns are hot to hedge, too. Early this year, Matt Slater, 23, co-founded a company called Hedgy Inc. with former Apple Inc. engineers Juan Pineda and Tim Olson, and designer Warren Paul Anderson. Hedgy is building a system to hedge bitcoins via the blockchain, bitcoin’s beating heart and what even skeptics call its greatest strength.The blockchain is an online ledger that tracks all bitcoin transactions. It can also be used to prove the existence of contracts at certain times and terms. Bitcoin sales arranged by Hedgy and set for a future date will be encoded in the blockchain. Both sides of a trade will put 20 percent of the value of the contract in escrow -- again in the blockchain.
As the bitcoin price moves in either direction, the blockchain will make a payment from escrow to the other party automatically. No party will be able to remove that collateral.
TeraExchange’s platform is up and running. Hedgy is looking for venture capital. Old and new solutions to the same problem: how to take some of the risk out of owning a strange new asset with plenty of promise.
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