Earlier this week, institutional Bitcoin (BTC) futures platform Bakkt launched two new monetary merchandise: the primary United States-regulated BTC choices and cash-settled futures. The announcement got here simply three months after the challenge went live with its bodily delivered futures, following a sequence of delays.
Meanwhile, the platform’s CEO, Kelly Loeffler, is reportedly going to replace Georgia Senator Johnny Isakson within the U.S. Senate by the top of the yr. So what do these new developments imply for Bakkt and the crypto market generally?
What is Bakkt?
Bakkt (pronounced “backed,” referring to “asset-backed securities”) is a digital property platform created by the Intercontinental Exchange, or ICE, an Atlanta-based operator of 23 main worldwide exchanges that embody the New York Stock Exchange, the world’s largest change.
It was first announced on Aug. 3, 2018, when ICE revealed its plans to create a platform “that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.” The idea was formulated over 5 years, as each of Bakkt’s co-founders, Loeffler and her husband Jeff Sprecher — who can also be the founder, chairman and CEO of ICE — stated in a Fortune profile.
The listing of Bakkt’s allies consists of Microsoft, Boston Consulting Group and Starbucks, all of which have invested within the challenge. The platform’s backers additionally embody an array of Wall Street gamers akin to Fortress Investment Group, Eagle Seven, Susquehanna International Group, Galaxy Digital, Horizons Ventures and Pantera Capital.
Bakkt’s important function is bodily delivered BTC futures contracts, which the platform actively marketed forward of launch. Futures symbolize an settlement to purchase or promote an asset on a particular future date at a particular worth — an essential danger administration device for unstable markets akin to crypto.
Although, it’s not a completely new idea for the crypto market, as BTC futures have been traded since December 2017 on two main U.S.-regulated exchanges — the Chicago Mercantile Exchange and the Chicago Board Options Exchange. However, the gives of each Chicago exchanges are settled in money, whereas the ICE-backed platform debuted bodily one-day BTC futures contracts.
Bakkt’s launch — underwhelming at first, ultimately picked up tempo
Nine months out from its scheduled launch date, Bakkt lastly commenced companies on Sep. 23, 2019 after various delays. However, regardless of the extended anticipation and analysts’ bullish predictions, the challenge saw simply 71 BTC (about $700,000 on the time) traded within the first 24 hours.
Nevertheless, the state of affairs quickly started to alter, because the buying and selling quantity of Bitcoin futures soared to 224 contracts on Oct. 9 — 796% increased than the day before today. In two weeks, the all-time excessive rose to 452 BTC futures contracts per day. By the top of the month, Bakkt skilled one more increase in quantity that drastically dwarfed earlier developments: On Oct. 26, the platform traded 1,183 Bitcoin futures contracts, or roughly $11 million, in a single day.
Around the identical time, Bakkt determined to capitalize on the excellent news, with the agency announcing its plans to launch the primary regulated choices contracts for Bitcoin on Dec. 9. In the accompanying press release, the corporate’s Chief Operating Officer Adam White argued that the bodily Bakkt Bitcoin (USD) Monthly Futures that had been launched again in September produce a benchmark contract that “provides the foundation for us to develop complementary products based on the needs of our customers.” He added that the choices contracts will comprise of capital effectivity, money or bodily settlement, low charges and European-style choices.
New choices: What’s on supply to buyers?
Indeed, on Dec. 9, Bakkt unveiled two new Bitcoin funding merchandise: Bakkt Bitcoin (USD) Monthly Options and Bakkt Bitcoin (USD) Cash-Settled Futures. According to the platform, the month-to-month choices product is the primary Bitcoin futures contract regulated by the U.S. Commodity Futures Trading Commission. As per the announcement, worth discovery happens inside a federally regulated market and has no publicity to unregulated Bitcoin spot markets.
“Cash settled futures products simply net the difference at expiry with one party receiving that cash difference,” as John Todaro, director of digital foreign money analysis at TradeBlock — a New York-based information supplier — instructed Cointelegraph, elaborating:
“In this way, cash settled futures are often seen as simpler instruments, mostly for speculative purposes, have less delivery costs/warehousing costs associated with them, but in some cases may not be seen as the best instrument for parties that actually need the physical asset for hedging or other (like a bitcoin miner for instance may need to deliver the physical bitcoin). In both cases, futures contracts require the two parties to transact at a certain price at a future date.”
The cash-settled futures product, in flip, is a brand new contract that shall be initially obtainable on ICE Futures Singapore, an accredited change situated within the island city-state. The contract relies on the settlement worth of the benchmark Bakkt Bitcoin month-to-month future contract and gives an “alternative for participants who are unable to trade our physically delivered contract,” the weblog publish reads. Todaro defined to Cointelegraph:
“Options are similar to futures in that they are derivative contracts, but they have more nuance to them (a whole host of strategies can be built on calls and puts) and do not require the two parties to transact. A buyer has the right (the option) to transact but not the obligation to do so. The reason the buyer may not want to exercise the contract is if the price is no longer in his/her favor — however this person is paying a premium for this right.”
When requested whether or not the brand new monetary merchandise are more likely to appeal to extra institutional investments, consultants warn that there are extra components to take into consideration, particularly liquidity. Juan M. Villaverde, chief crypto analyst at Weiss Ratings, instructed Cointelegraph:
“Over time it’s likely to be institutions like the CME and Bakkt that are needed to create the necessary infrastructure to attract institutional investors to Bitcoin and cryptocurrencies. But they are not, by themselves, enough. Reason: The biggest struggle for Bitcoin futures has been lack of liquidity. Without liquidity, demand for crypto assets from institutions will continue constrained, at least in the near term.”
Todaro instructed Cointelegraph that whereas the cash-settled futures product is “similar to their physically settled offering in terms of attracting institutional interest”, a regulated platform for buying and selling Bitcoin choices contracts “would likely attract greater institutional interest.” So is that good for Bitcoin’s worth? Not essentially, consultants say. “The primary benefit of options and futures markets is to help balance and dampen volatility,” Villaverde explains:
“That’s good for long-term individual investors and commercial players. But it may not get a resounding cheer from crypto traders who are attracted to crypto assets precisely because of their high volatility.”
Todaro can also be skeptical on this regard, as he thinks that the brand new monetary merchandise may create more room for bear motion as a substitute of a flood of investments into the highest cryptocurrency. He instructed Cointelegraph:
“While an increase in bitcoin product offerings would bring about greater institutional involvement in the space, it is not exactly clear that these institutions would be buyers of the asset class.”
Notably, extra mainstream-oriented buying and selling platforms are wanting into cryptocurrency monetary merchandise. By introducing Bitcoin choices in December, Bakkt has outpaced the Chicago Mercantile Exchange, who’re planning to launch choices on Bitcoin futures on Jan. 13, 2020. However, the CME’s providing remains to be more likely to be extra fashionable as soon as it goes stay, as Todaro suggests:
“While Bakkt would have an initial advantage, the CME maintains a stronger presence in the derivatives market and so institutional traders and investors are already very comfortable with their platform. Currently, Bakkt’s bitcoin futures product does around 10% of the daily notional trading volume that the CME’s bitcoin futures product does. As such, the CME remains the higher volume platform and I would expect this to continue as similar bitcoin products launch.”
Such competitors means that “this risk management problem is well on its way to being solved,” as Travis Kling, chief funding officer at crypto asset administration agency Ikigai, instructed Cointelegraph, “Just one more sign that Bitcoin is growing up.”
Bakkt’s CEO off to the U.S. Senate — wholesome for crypto?
Bakkt may make extra official bulletins earlier than the yr’s finish. On Dec. 4, the Washington Post reported that Georgia Governor Brian Kemp appointed Kelly Loeffler to a seat within the U.S. Senate. Thus, the Bakkt CEO will exchange Sen. Johnny Isakson (R-GA), who plans to retire on the finish of the yr.
Consequently, Loeffler will step down from the digital property platform. The Intercontinental Exchange has thanked Loeffler for her work with Bakkt, in accordance with an announcement by Josh King, a spokesman for ICE. Loeffler’s upcoming entry to the political scene is a optimistic signal for the crypto business at massive, Todaro shared in a dialog with Cointelegraph:
“Kelly Loeffler obviously understands the space and is a proponent of it, and so, where applicable on matters before her in the Senate, I would imagine she would be a proponent of bitcoin and other digital currency platforms.”
Additionally, Bakkt has some concrete plans to facilitate its crypto growth into the mainstream in 2020 — a consumer app developed along side the “flagship retailer” Starbucks. According to the corporate, the app will assist shoppers “unlock the value of digital assets, as well as ways in which they can transact or track them.”
Cointelegraph reached out to ICE for feedback, however the firm has not replied as of press time.