NYSE Owner-Backed Bakkt Launches Futures Trading

Bakkt, the bitcoin futures platform backed by NYSE owner ICE, launched trading for its contracts yesterday evening. The first bitcoin contract was traded on the platform at 8:02 pm. During the first hour, three Bitcoin were traded on the exchange. As of this writing, 53 monthly contracts for bitcoin have exchanged hands, forecasting a price lower than $10,000 for the cryptocurrency next month.

Bakkt is among a trio of regulated futures trading platforms that are expected to change the landscape for bitcoin futures trading and prices. LedgerX and ErisX, the other two, are expected to launch in the coming months.

Bakkt claims to be the first regulated end-to-end platform for trading in bitcoin futures. In a Medium post about the launch, Kelly Loefler, Bakkt CEO, highlighted the importance of trust within the cryptocurrency ecosystem. “We’re starting with the basics: instilling trust through regulation and secure custody and deploying products that are transparent and regulated to support their adoption,” she stated.

While the world’s biggest derivatives platform Chicago Mercantile Exchange (CME) also offers bitcoin futures, their contracts are cash-settled: traders receive cash upon expiry.

The contracts at Bakkt are physically-settled, meaning traders receive bitcoin after the expiration date. Bakkt has self-certified its custody processes with the CFTC and is registered as a Trust company in New York.

Physically-settled bitcoin contracts will bring the cryptocurrency’s futures contracts in line with the contracts for other commodities. The availability of bitcoin upon contract expiry will also allay institutional investor concerns about volatility in the underlying cryptocurrency exchanges that are used to set prices for futures trading. A study earlier this year estimated that 95 percent of trading volume at cryptocurrency exchanges was fake.

Institutional Adoption May Take Time

The jury is still out on whether Bakkt’s futures will make a difference to bitcoin price at spot exchanges. In some markets, such as commodities, futures markets are predictors of price movements. For example, spot oil markets keenly watch futures prices as indicators for trading range for that day.

At first glance, conditions in the crypto market seem ripe for Bakkt to determine spot prices. The liquidity and volumes of cash markets for bitcoin are fairly thin because they are dominated by retail investors. The entry of institutional investors and their fat checkbooks should pump up volume and liquidity substantially.  

Much depends, however, on the reception that Bakkt receives from institutional investors.  

For now, they seem to have adopted a wait-and-watch attitude. “It’s not demand yet, it’s intense curiosity,” said Jeffrey Sprecher, CEO and founder of ICE. “It’s the sense that money managers want to be at the front of this train and not left out.”  

In a conversation with Coindesk, John Todar, director of research at Trade Block, predicted that demand for Bakkt’s products would be in line with those offered by the CME. (The Chicago-based exchange recently announced an increase in position limits for bitcoin futures trading and plans to introduce bitcoin options on the back of increased demand for the product).

But Todar cautioned that institutional demand will take time to mature.

“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,” he said.