FTX Launches Futures Contracts for Betting on Bitcoin's Hashrate

Key highlights:

• FTX has released new futures contracts that allow traders to speculate on the Bitcoin hashrate
• Each contract expires at the end of its respective quarter
• Bitcoin has a difficulty adjustment mechanism designed to keep block times close to the 10 minute target

Betting on Bitcoin hashrate

The FTX cryptocurrency exchange continues to aggressively expand its cryptocurrency derivatives by developing and listing unique trading products. Today, the exchange has unveiled futures contracts that track the Bitcoin network’s mining difficulty to provide an estimate of Bitcoin’s hashrate.

The exchange explains why it decided to tie its HASH futures contracts to mining difficulty:

“It's impossible to exactly measure hashrate--the best you can do is approximate it from block times and difficulty. However, given that difficulty adjustments attempt to maintain 10m block times, over long periods of time the average hashrate will be proportional to the average difficulty.  So that means that, roughly speaking, difficulty futures should behave similarly to hashrate futures.”

The contracts are designed to expire at the end of each quarter. At the time of writing, HASH contracts are offered by FTX in variants that will expire at the end of Q3 2020, Q4 2020 and Q1 2021, respectively. As an example, the exchange explains that “the Q32020 Hashrate Future expires, roughly, to the average difficulty of mining a bitcoin for July-September 2020”

The Bitcoin protocol has a built-in mechanism to adjust mining difficulty. This feature is implemented in Bitcoin to maintain the average block time close to the 10 minute target. The difficulty changes every 2016 blocks (approximately every two weeks).

Of course, it’s probably no coincidence that FTX is launching these contracts right after the third Bitcoin halving, which has led to the Bitcoin miner ecosystem enjoying increased attention. The block reward halving is putting considerable pressure on miners who are either using old-generation mining equipment or paying high prices for electricity. 

FTX's products go beyond crypto asset prices

FTX is no stranger to derivatives products that go beyond simply speculating on crypto asset prices. Recently, FTX also launched tokens that allow users to speculate on Bitcoin’s implied volatility, and the exchange also offers futures contracts that make it possible for traders to bet on which candidate is going to win the 2020 United States presidential election.