Luxor launches Bitcoin-based OTC derivative

Luxor, a Bitcoin mining company, has launched Luxor Hashprice Non-Derivable Forward (NDF), an Over-The-Counter (OTC) derivative product based precisely on BTC mining revenue.

Luxor Hashprice NDF and the income generated from Bitcoin hashrate

Crypto company Luxor has launched its new Over-The-Counter derivative product: Luxor Hashprice NDF, based on the income generated from the hashrate. 

For years now, Luxor has been working on a derivatives product tailored specifically for miners.

We are thrilled to announce that this is now a reality with the Luxor Hashprice Non-Deliverable Forward.https://t.co/2DSUnr2E9e

— Luxor Mining (@LuxorTechTeam) October 10, 2022

“For years now, Luxor has been working on a derivatives product tailored specifically for miners. We are thrilled to announce that this is now a reality with the Luxor Hashprice Non-Deliverable Forward.”

In essence, the new Luxor Hashprice NDF product, is a non-deliverable forward contract for the “hashprice” of Bitcoin mining – a term coined by the company, which refers to the revenue miners earn from a unit of hashrate over a specific period of time.

Each Luxor Hashprice NDF has the hashprice as its underlying and involves an agreement between buyers and sellers on (1) daily hashrate, (2) hash price, and (3) duration of the contract.

When the contract expires, the two parties settle the difference between the price set in the contract and the settlement value of the underlying asset, namely the hashprice. 

Luxor and the new NDF derivative product based on the hashprice

The new Luxor Hashprice NDF product is intended to provide investors such as hedge funds, financial institutions, and other trading companies with direct exposure to miners’ revenues without other variables that may affect the company’s share price, such as operating costs.

Not only that, Luxory mining’s product also provides a much-needed hedge for miners.

In this regard, Matt Williams, head of derivatives at Luxor, said:

“While many derivative instruments exist for miners to hedge their Bitcoin price exposure, as well as their power and energy exposure, the space was lacking an instrument to easily hedge their hashrate exposure.”

Luxor will settle payments using its Bitcoin hashprice index as the reference rate for hashrate value. Contracts can be paid in dollars, BTC or a USD stablecoin, and their duration will be flexible and customized to the needs of the counterparty.

Moreover, the crypto company stated that this product is only “first of many” derivatives it plans to launch this year.

The volatility of mining company stocks

In this bear market period, the shares of listed cryptocurrency mining companies are also feeling the effects. 

Recently, the performances of Marathon Digital Holdings and Riot Blockchain, the only two crypto-mining companies to exceed $1 billion in capitalization, and others, have been analyzed. 

Specifically, both Marathon (MARA) and Riot Blockchain (RIOT) experienced declines, reminiscent of Bitcoin’s price trend. Something that seems natural, although there have been exceptions.

And in fact, BIT Mining, Argo Blockchain UK, SAI.TECH, and Bit Digital posted increases of even more than 5%. The motivation for such growth could be related to the local context or individual initiatives of crypto companies that set them apart in the market from the general trend.