Bitnomial envisions major U.S. expansion for bitcoin futures as it raises Series B funding round

Bitnomial joined a select club of U.S. businesses in late April when it received approval from the Commodity Futures Trading Commission (CFTC) to operate as a designated contracts market, or DCM. This approval cleared the way for the firm to offer bitcoin futures and options.

Since its founding in 2014, the startup has raised $7 million across two funding rounds to date, drawing support from  investors like Jump Capital, Coinbase Ventures, Digital Currency Group and RRE Ventures, among others. And according to a pitch deck obtained by The Block, Bitnomial is seeking to raise a $10 million Series B to fuel the next phase of its expansion, aiming to use the funds to grow its team, launch a "new retail clearing business" and "[l]aunch [a] broader Bitcoin Complex product suite."

It's unclear when the deck was published, but the firm has been communicating with potential investors in recent weeks, according to a source with knowledge of the process. 

But the documents in question are less notable because of the amount sought and more so because of the ambitious plan laid out by Bitnomial. The firm is looking to become the dominant marketplace for bitcoin futures and options trading in the U.S. To that end, it wants to team up with the country's crypto exchanges to offer its derivatives on existing spot platforms. That would potentially open the door to a wide-ranging retail and institutional clientele in the millions. Coinbase Ventures, Coinbase's investment arm, backed Bitnomial in its Series A. 

Bitnomial CEO Luke Hoersten told The Block when reached: "Bitnomial does not comment on capital raising or commercial strategy."

According to the deck, Bitnomial sees an opportunity in the fact that of the billions of dollars in daily volume for bitcoin futures, only a fraction of that amount is taking place within U.S. shores. This state of affairs means that would-be investors are prevented from participating — or if they do, they must swallow the heightened risk of using off-shore exchanges and rely on the use of VPNs to circumvent access controls, the deck explains. 

To be sure, CME Group, which launched a bitcoin futures market in 2017, has seen its marketshare grow at a fast-clip in 2020. At last check, open-interest in the contract stood above $700 million as per data from Skew. Open interest in BitMEX's bitcoin futures market stands just under $1 billion, by way of comparison. And as The Block reported earlier this week, Binance has ambitions of its own to launch futures trading in the U.S.

Still, other market participants like ErisX, SeedCX and LedgerX have had less success in the U.S., in terms of derivatives trading volumes. In the deck, Bitnomial explores why certain U.S. bitcoin futures markets have failed to take off alongside their global peers. Among the reasons cited: "Legacy US futures are hard-coded to industrial multinationals and are incompatible with retail — Major disruption needed to capture market: technology, capital structure, and funds flows... Retail bitcoin futures participation is key for institutional participation." Bitnomial also contends in the deck that the route for retail customers to access bitcoin futures is a cumbersome one, citing the process employed by TD Ameritrade.

In laying out its target customer base, Bitnomial lays out several areas. First and perhaps most notably, the startup envisions offering futures on popular U.S.-based platforms like Coinbase and Kraken as well as Bitstamp, which is based in Europe. The deck also highlights "US businesses [that are] generating BTC profits and need hedging: lenders, miners, money transmitters, prime brokers, etc. No suitable hedge today." It also cites "international businesses" that are prevented by law from using unregulated futures exchanges.

Looking to the future, Bitnomial highlights the potential to reach a projected annual volume of $720 billion — drawing "from market ratios and today’s volumes" to make that assessment— and an implied annual revenue of $360 million should its expansion plans come to fruition. 

As for why investors should get in, Bitnomial notes among several reasons: "Inflation-resistant investments are in high demand amid [the] largest ever stimulus — Bitcoin is the ultimate inflation-resistant investment."