Since the last couple of months, the cryptocurrency market had been reviving after the aftermath of what happened in the early year of 2018. With a seasonal trend, the Bitcoin was again rising from its lowest value of $3,500 to $13,000 while the rest of the cryptocurrencies were also making their presence felt by churning our large market caps. The reason for the rise of Bitcoin and the whole cryptocurrency market after 2018 were attributed to a few future events that were yet to take place. You can click here to read our article on this topic.
One such event was the launch of Bakkt. Bakkt is an open platform for all type of cryptocurrency services including warehousing and have been specifically designed for all the financial institutions to invest their money in Bitcoin. One of the products that Bakkt offered was Bitcoin Futures which was supposed to change the game for Bitcoin. Many people believed that the launch of Bakkt would shoot the price of Bitcoin to new heights. The hype was for real.
However, as soon as Bakkt was launched on 22 September 2019, the number of contracts sold in the first hour was just 5, while for the whole day, the number of contracts sold was just 28. The Bakkt/ICE Bitcoin Futures settled its price for the day at $10,115. As on 27th September 2019, a total of just 165 contracts have been purchased on the Bakkt platform.
In comparison to the CME (Chicago Mercantile Exchange) and CBOE (Chicago Board Options Exchange), Bakkt is way behind them in terms of volumes. On 27th September 2019, around 4,099 contacts were purchased on the CME platform while the number was even higher on 24th September where more than 14,000 contracts were purchased.
Yes, the start was a disappointing one. But instead of calling it a disappointing start, we should rather call it a slow start which is very normal and natural for something which is a regulated futures product. In fact, Su Zhu, CEO and CIO of Three Arrows Capital (Singapore BASED Hedge Fund) said that many regulated futures contracts usually see a low adoption in its initial time because many future brokers are not ready to clear them.
How Bakkt Is Different From CME and CBOE
The Bakkt warehousing solution is being regulated by NYDYS (New York State Department of Financial Services), hence, making it a perfect and qualified custodian. Also, one of the differences between the CME and Bakkt is the nature of the settlement. Bakkt offers a physical settlement on the expiration date while CME offers cash-settlements. This means that when the Bitcoin Futures contract on the Bakkt platform expires, the settlement will be done by payment in BITCOINS only. While on the other hand, when the Bitcoin Future contracts expire on CME and CBOE, the final settlement is done by paying in CASH.
Also, one of the prime uniqueness of Bakkt Bitcoin Futures is the fact that they can also expire after a day which makes it a hot cupcake for many institutions. It is being speculated that the physical transfer of Bitcoin on the expiration day will be a big leap for the acceptance of Bitcoin in the world. Also, the physical delivery of Bitcoin will require 'an actual' purchase of Bitcoin, making the Bitcoin market healthy.
Way For Institutional Money Into The Cryptocurrency Market
Ignoring the fact that Bakkt Bitcoin's future had a slow start, we shouldn't be too much concerned with such kind of short-term outcomes. Bakkt offers institutional investors a well-monitored and secure platform to trade Bitcoin. This will help in eliminating some of the drawbacks of Bitcoin like volatility and trustworthiness.
The Bitcoin futures contracts in Bakkt will help the financial investors to hedge their funds and mitigate the risks by smoothening out the price difference in Bitcoin with large trading volumes of Bakkt contracts while their newly purchased contracts will be stored in the secured warehouse operated by same cybersecurity team that safeguards equity trades in NYSD (New York Stock Exchange).
Also, one of the reasons why Institutional Money will make their way into the Bakkt Bitcoin Futures is due to the malpractices reported by Bitwise, a crypto-asset management firm which states that 95% of the trades on the crypto exchange are meant to fluctuate price and not for real trade. The high sell and buy walls are all mostly fabricated, thus restricting the institutional players to practice fair trade. And due to such spoofing practices in such crypto exchanges, the need for Bitcoin Future market provided by Bakkt is one step solution for the intuitional money to get into the crypto market as the futures contracts are highly regulated and rigorous. The Bitcoin trading has been dominated by more than 200 crypto exchanges, hence, fair trade practices for institutional players in the spot bitcoin market is a myth. And that's the reason why they will get into the Bakkt Bitcoin Futures market to have a centralized and fair trade environment.
It will be hard to figure out the reason what big institutional players were thinking during the opening day of Bakkt Bitcoin Futures. However, given the fact that it is the Bitcoin, a perceived volatile asset which was being traded in the future market, it's a not a big surprise that the big intuitional sharks decided to just wait and watch. It's just a matter of time for them to make their move after the all the hype settles down and the Bitcoin market gets some stability.
written by Devashish