Growing institutional interest is helping to drive a recent spike in volume on Bakkt, according to its president, Adam White. But the U.S.-regulated crypto derivatives exchange is holding out hope its dormant options platform will eventually gain traction.

Trading volumes for physically settled bitcoin futures on Bakkt rose to $134 million on Tuesday from a previous high of $132 million on July 28, according to crypto derivatives data firm Skew. Bakkt went live last September.

“The market recognizes the value that a regulated physically delivered bitcoin future offers for hedging and risk management and speculation,” White told CoinDesk in a phone interview on Aug. 26.

This has been part of the significant growth in bitcoin’s derivative market as a whole, after the cryptocurrency’s price went above $11,000.

Getting physical with bitcoin

Despite the recent surge on Bakkt’s bitcoin futures trading volumes, it still lags behind the Chicago-based CME Group, a bigger, U.S.-regulated exchange. Data from Skew shows the aggregated daily volumes of bitcoin futures on Bakkt and the CME were at $279 million and $1.5 billion, respectively, on Monday.

Compared with many offshore, unregulated exchanges that have taken the majority of the bitcoin futures market share, White said Bakkt has the advantage of being based in the U.S. and owned by the Intercontinental Exchange (ICE), which also owns the New York Stock Exchange.

“We are a fully regulated intermediated traditional futures market. Contrast that with the offshore unregulated markets that you see trading on a lot of crypto exchanges,” he said.

The crypto derivatives provider launched its bitcoin futures contracts in late 2019 with the goal of serving its institutional clients, who range from market makers and proprietary trading firms to family offices and traditional hedge funds, according to White.

At the same time, unlike the CME, Bakkt’s bitcoin futures contracts are mostly settled with physically delivered bitcoin, meaning buyers receive tokens at expiration instead of cash. 

Some U.S. institutions are only allowed to trade on regulated exchanges. Thus, if they want to get into crypto, they have two choices: Bakkt or the CME, because exchanges such as Coinbase are licensed but unregulated in the U.S. For those who want to hold their bitcoin in their hands, Bakkt is basically the only game in town.  

White said the physical delivery of bitcoin puts Bakkt at advantage because the exchange is seeing more clients interested in receiving crypto assets.

Read more: It’s Too Soon to Write Off Bakkt, Wall Street Analyst Tells ICE Investors

“It’s not a bet on the price of bitcoin,” he said. “It doesn’t rely on an index price created from unregulated spot markets that are self-reporting their data.”

In addition, White said that as the market grows, more traditional institutional investors are becoming “comfortable” with holding and trading crypto assets, which is evidenced by Bakkt’s increasing market share.

However, other industry experts have said physical delivery of bitcoin could be the one factor that has been hindering Bakkt’s growth in the crypto derivatives market.

According to Norwegian cryptocurrency analysis firm Arcane Research, the number of bitcoin contracts held to expiry on Bakkt dropped sharply in July, to 58 BTC from June’s 221 BTC – the lowest amount held to expiry so far in 2020.

Compared with a cash settlement, physical delivery of bitcoin could impose a tighter margin, Vishal Shah, an options trader and founder of derivative exchange Alpha5, told CoinDesk via Telegram.

No options, for now

Despite the success with its bitcoin futures products, Bakkt seems to be still struggling with its options contracts. No volume or open interest have been logged since June 15 in Bakkt’s bitcoin options.

Futures contracts on CME are settled with cash; options contracts settle in futures which in turn get immediately cash settled.

Meanwhile, CME’s bitcoin options contracts contributed about 10% to the total global open interest on Tuesday, second behind Deribit, who accounted for 80% of the market. Open interest is the number of outstanding contracts.

White shrugs off concerns about Bakkt’s options products, saying the crypto options market as a whole has a long way to go before it matures.

Read more: Bitcoin Options Open Interest Nears All Time High – But Rise in Puts Could Presage Drop

“When people ask, ‘Aren’t you worried about your options volumes?’ Absolutely not,” White said. “These are the early innings. Most of the options volume is happening offshore, unregulated, not cleared and, frankly, we’re not even sure how much of that volume is legitimate.”

White is banking on growing trading volumes and open interest Bakkt’s futures products to eventually draw customers to its options suite, and is therefore not planning on delisting options contracts anytime soon.

“As the institutions move into the futures, their hedging and risk management needs will evolve towards options, and we are going to be there ready to serve them,” White said.

[Clarification: CME bitcoin options settle first in the futures, which immediately get settled in cash. Technically, these options are not cash settled as initially reported.]