On Tuesday, LedgerX, which is a federally-regulated institutional trading and clearing platform with approval to trade/clear swaps/options on cryptocurrencies, announced an industry first — a Bitcoin (BTC) savings account product called “LedgerX Savings.”
The basic idea of LedgerX Savings is to enable investors to earn a yield in fiat (USD) on their bitcoin holding. Rather than just HODL and hope for the bitcoin price to go up, this product lets investors utilize what is known amongst derivatives traders as a “call overwrite” options strategy without having to know anything about derivatives.
Over the past few months, LedgerX noticed that the technique of depositing some bitcoins into a LedgerX account then selling a call option for a future date (typically, three, six, or twelve months later) with a strike price higher than today’s spot price was very popular with many/most of its existing clients. So, it decided to create a new savings product that greatly simplifies the work of using a call overwrite strategy by hiding that complexity behind a simple user interface that doesn’t even mention the word option. Here is a screenshot from this interface:
The premium (in USD) for selling the underlying call option that is collected is calculated as an approximate yield and updated in real time. After choosing the LedgerSavings product for the desired maturity, the USD amount is available for immediate withdrawal. The associated bitcoins are locked for the duration of the savings product. There are three possible maturity dates (with varying rates): three months, six months, and twelve months.
At maturity, if BTC is selling for approximately twice the current spot price, you will exchange your BTC for that amount (i.e. you have a 2X exit). Otherwise, you get your BTC back and keep the USD interest you received when buying the savings product.
Juthica Chou, Co-founder and Chief Operating and Risk Officer at LedgerX told Forbes in an interview: “This interface will definitely be skewed to the long bitcoin holders, who will likely only deposit bitcoin and who will want to earn interest off of that bitcoin.”