Bakkt, the ICE-backed bitcoin futures exchange, begins testing of its bitcoin futures contracts today. The exchange plans to offer a monthly and a daily contract to users. The futures contracts will be physically-settled on delivery.
Up until now, most exchanges have offered cash-settled bitcoin futures contracts to allay investor fears about the cryptocurrency’s regulatory status and volatility at underlying cryptocurrency exchanges. A report earlier this year claimed that 95% of cryptocurrency exchanges had fake volumes.
Bakkt’s futures contracts are also self-certified. This means that Bakkt has analyzed its processes and certified the contracts as being compliant with existing regulations. The CFTC can verify and validate the certification anytime.
A Moonshot Bet?
In a Medium post last month, Adam White – Bakkt COO, likened the launch of Bakkt futures to a moonshot bet because they are being tested just two days after the fiftieth anniversary of NASA’s moon landing. While other firms (ErisX and LedgerX) are also in the running to offer similar contracts, Bakkt is the first firm to get off the ground.
CME and CBOE had launched bitcoin futures contracts within a week of each other back in 2017. However, the market for crypto futures at both exchanges failed to take off in the whipsaw and subsequent swoon in cryptocurrency markets. Reports of scams, SEC crackdowns, and fake volumes further scared investors away last year.
The situation has changed in recent times. Regulators have made conciliatory noises about the role of cryptocurrencies and social media behemoth Facebook announced its entry into cryptocurrencies and blockchain with Libra.
Bakkt’s entry is expected to herald the opening of floodgates for institutional money into bitcoin. This is primarily because Bakkt is the first regulated exchange to offer physical bitcoin settlement.