Bakkt is finally here.
After two delays and 13 months of questions, the Intercontinental Exchange-backed bitcoin warehouse
and futures contract facilitator is launching Monday, opening the door
for institutional investors to take positions on the cryptocurrency in a
federally regulated venue.
Trading is set to open at midnight UTC and close at 22:00. For the
first time, interested observers will be able to see just how much
pent-up demand there is among big-money traders for this hotly
anticipated service. Bakkt’s data feed will be freely available through June of next year, after which it will require a subscription, according to a company FAQ.
As often noted, Bakkt’s futures will be physically settled, meaning
buyers receive bitcoin at expiration, whereas the futures available
since 2017 at the Chicago exchange CME Group are cash-settled –
essentially side bets on the cryptocurrency’s price.
But what may be most unique about ICE’s bitcoin futures contracts is
that they expire after a day. According to the daily contract’s
specifications, the bitcoin will be delivered on the second business day
after the contract’s date.
For most commodities – frozen concentrated orange juice, cocoa, what have you
– the underlying asset is typically not delivered for at least 30 days
(although ICE also offers one-day contracts for silver and gold).
While Bakkt is also offering a 30-day bitcoin futures contract, the
one-day version will essentially allow institutions to buy or sell
bitcoin in a way that’s more familiar to them than the helter-skelter
world of crypto exchanges.
As Lanre Sarumi, CEO of crypto derivatives exchange operator LevelTradingField, put it:
“The dailies make their offering like the cash market, but with the ability to short. That’s huge.”
The contract is “well-designed,” Sarumi added. “The basis to the cash
market would be very tight. It’ll be interesting to see if it’s the
lead or the follower. In theory the cash market should dictate the price
of the derivatives [futures] market. In practice, it’s the other way
around for a lot of commodities.”
For this reason, Sarumi said he believes the daily contract “will come out of the gate strong.”
That being said, it is unlikely that ICE’s new futures contracts will
have a significant near-term impact on the general crypto market,
particularly given the company is not looking for retail customers, who
make up the bulk of traders still.
Bakkt anticipates significant institutional demand for its futures
contract, though it remains to be seen how significant it actually is.
“We could see decent trading volumes for the product,” said John Todaro, director of research at TradeBlock,
a provider of institutional trading tools. “I would expect, however,
that the demand would be somewhat in line with current cash-settled
contracts, such as those offered by the CME.”
Trading volumes for derivatives contracts traditionally outpace
trading volumes seen in the underlying spot market, Todaro told
“As the digital currency space continues to mature we should see an
increase in volumes for these products relative to spot over time,” he
However, it is unlikely that there will be an immediate surge in
demand. Institutional adoption won’t occur with a single catalyst,
Todaro said, adding:
“It will take time for these entities to become
comfortable with the asset class, identify strategies that are best used
to trade the space, understand crypto market liquidity, and also
understand the different regulatory and tax obligations across
jurisdictions they operate in.”
It is unclear how much bitcoin has been sent to Bakkt since the New
York Stock Exchange’s sister company opened its warehouse up for
customers to deposit bitcoin on Sept. 6. Each customer must pledge a minimum $3,900 of assets in collateral to purchase a contract. (Speculators must pledge nearly $4,300.)
Bakkt has not disclosed any addresses for its custodian’s wallet or
said how much bitcoin has been deposited since the warehouse opened this
month. A spokesperson did not answer questions about the matter by
Caveats aside, ICE launching futures contracts is a significant move
for the industry. Todaro noted that “traditional financial institutions
are quite conservative.”
“The offering demonstrates that more and more Wall Street
institutions are taking a close look at digital currencies and want to
gain exposure to this new asset class,” he said.
It is possible that “some of the recent positive market moves across
digital currencies have been from traders acting on the Bakkt launch,”
Bakkt’s launch may be a positive sign for other highly anticipated
products in the U.S., such as a bitcoin exchange-traded fund (ETF). Last
week. Securities and Exchange Commission (SEC) Chairman Jay Clayton
expressed concerns with the cryptocurrency market’s maturity.
Derivatives products, like futures contracts, are more tightly
regulated than the underlying spot market, and may be more comforting to
regulators and potential institutional customers alike.
“This offering, in addition to the CME’s, can help
regulators become more comfortable with digital asset trading and market