Digital currencies may be very innovative, but the have one fatal flaw, liquidity. Thinly traded markets are very unstable, wild price fluctuations are the hallmarks of a thin order book. That kind of volatility may be great for speculators, but unchecked volatility renders most digital currencies totally unusable in any practical sense. Alt-Options(AO), is a bitcoin options exchange that pools together market makers, miners and payment processors in one trading venue.
“Multiple liquidity providers connect you with miners, buy-side firms and payment processors.“ – alt-options.com
AO is the brainchild of four students at the University of Boston: Kevin, Andrei, Marco and Joe. The idea behind the Alt-Option venture is to eliminate the entry barriers for investors and to provide a venue for miners to earn a return on their mined digital currency. Bitcoin miners have fixed mining expenses that need to be accounted for on a regular basis (e.g. electricity costs). Instead of miners selling their mined holdings to cover their expenses, miners can utilize the AO platform and construct various option instruments that can offer an additional income. These cryptocurrency-based options are then offered on the AO order-book, where sophisticated investors and speculators can take on exposure to the digital currency market without holding any digital currency themselves.
Bitcoin mining and storage is an expensive and risky proposition; hackers, data loss, hardware investment, and many other expenses serve as an entry-barrier to many potential investors. By using the AO platform, investors can bypass all the potential headaches associated with mining and storing bitcoin, and just focus on risk management and market analysis.
Alt-Options may not even need to handle the secure storage of large amounts of digital currency, as the platform will use third-party API functionality to move digital assets from already established multi-signature bitcoin storage companies and exchanges. AO will just provide the trading venue where large buyers and sellers are matched.
Bitcoin derivatives in theory should provide a greater amount of liquidity to market, and thus smoothing out the price fluctuations. Alt-Options, like many other bitcoin exchanges, will provide proof of reserves by displaying the balances of their digital currency holdings. The AO platform is still in beta testing, and all interested parties will need to request an invitation from the development team on AO’s website. Participants who wish to test the beta version of the AO platform, will only be allowed to trade with play-money until the live version is released.
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