bitcoinOn Monday, March 24, TeraExchange, a trade execution platform that deals in numerous types of cleared OTC swaps, announced that it had constructed the first derivative swap involving Bitcoin. Two U.S. firms had privately negotiated the swap, which is a mult-million dollar transaction of funds to hedge the value of Bitcoin. If the swap is transacted, it would bring Bitcoin under the scrutiny of the U.S Federal Government for the first time in its history. The contract would need to be reported to the U.S Commodity Futures Trading Commission (CFTC), which regulates futures and swaps.

TeraExchange said that it had been communicating with the CFTC and is using all of the features available on its Swap Execution Facility (SEF) but, that because Bitcoin is not regulated and not authorized to be traded on a SEF, the transaction will not actually occur on the SEF. However, if the CFTC determines that their jurisdiction covers digital currencies, then they may authorize Bitcoin being traded on the SEF. TeraExchange received permission to operate an SEF last year, which allows for more transparency and reportability.

For the most part, the fate of Bitcoin in terms of regulations is still relatively unknown. Recently the exchange completed an audit of its reserves, in an attempt to improve credibility after recent debacles with Mt. Gox and Vircurex. The cry for regulation has only increased in the wake of the Mt. Gox collapse, and many wish for the government to become involved as evidenced by the class action lawsuit in the U.S against Mt. Gox, and the company’s assets being frozen.

Other attempts at regulations for Bitcoin have also appeared recently. Ben Lawsky at the State Department of Financial Services in New York promoted a need for oversight which recently led to established application procedures for Bitcoin exchanges. Many believe that regulation would be a good thing. Tera President and Co-founder Leonard T. Nuara, in the press release regarding the new Bitcoin swap, said that, “Regulatory approval is crucial to the long-term growth of the market utilizing bitcoin.” The press release also said that Tera plans to make Bitcoin swaps available to eligible contract participant.

While the future of Bitcoin regulation remains uncertain, it is certain that it will continue to remain in the discussion and, if the TeraExchange development is any indication, will become more and more accepted in mainstream finance. While this new development may bring more government oversight, it is also certain to bring more widespread acceptance for Bitcoin.

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