Bakkt is finally here.
After two delays and 13 months of questions, the Intercontinental Exchange-backed bitcoin warehouse and futures contract facilitator is launching Monday, opening the door for institutional investors to take positions on the cryptocurrency in a federally regulated venue.
Trading is set to open at midnight UTC and close at 22:00. For the first time, interested observers will be able to see just how much pent-up demand there is among big-money traders for this hotly anticipated service. Bakktâs data feed will be freely available through June of next year, after which it will require a subscription, according to a company FAQ.
As often noted, Bakktâs futures will be physically settled, meaning buyers receive bitcoin at expiration, whereas the futures available since 2017 at the Chicago exchange CME Group are cash-settled â essentially side bets on the cryptocurrencyâs price.
But what may be most unique about ICEâs bitcoin futures contracts is that they expire after a day. According to the daily contractâs specifications, the bitcoin will be delivered on the second business day after the contractâs date.
For most commodities â frozen concentrated orange juice, cocoa, what have you â the underlying asset is typically not delivered for at least 30 days (although ICE also offers one-day contracts for silver and gold).
While Bakkt is also offering a 30-day bitcoin futures contract, the one-day version will essentially allow institutions to buy or sell bitcoin in a way thatâs more familiar to them than the helter-skelter world of crypto exchanges.
As Lanre Sarumi, CEO of crypto derivatives exchange operator LevelTradingField, put it:
âThe dailies make their offering like the cash market, but with the ability to short. Thatâs huge.â
The contract is âwell-designed,â Sarumi added. âThe basis to the cash market would be very tight. Itâll be interesting to see if itâs the lead or the follower. In theory the cash market should dictate the price of the derivatives [futures] market. In practice, itâs the other way around for a lot of commodities.â
For this reason, Sarumi said he believes the daily contract âwill come out of the gate strong.â
That being said, it is unlikely that ICEâs new futures contracts will have a significant near-term impact on the general crypto market, particularly given the company is not looking for retail customers, who make up the bulk of traders still.
Bakkt anticipates significant institutional demand for its futures contract, though it remains to be seen how significant it actually is.
âWe could see decent trading volumes for the product,â said John Todaro, director of research at TradeBlock, a provider of institutional trading tools. âI would expect, however, that the demand would be somewhat in line with current cash-settled contracts, such as those offered by the CME.â
Trading volumes for derivatives contracts traditionally outpace trading volumes seen in the underlying spot market, Todaro told CoinDesk.
âAs the digital currency space continues to mature we should see an increase in volumes for these products relative to spot over time,â he said.
However, it is unlikely that there will be an immediate surge in demand. Institutional adoption wonât occur with a single catalyst, Todaro said, adding:
âIt 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.â
It is unclear how much bitcoin has been sent to Bakkt since the New York Stock Exchangeâs sister company opened its warehouse up for customers to deposit bitcoin on Sept. 6. Each customer must pledge a minimum $3,900 of assets in collateral to purchase a contract. (Speculators must pledge nearly $4,300.)
Bakkt has not disclosed any addresses for its custodianâs wallet or said how much bitcoin has been deposited since the warehouse opened this month. A spokesperson did not answer questions about the matter by deadline.
Caveats aside, ICE launching futures contracts is a significant move for the industry. Todaro noted that âtraditional financial institutions are quite conservative.â
âThe offering demonstrates that more and more Wall Street institutions are taking a close look at digital currencies and want to gain exposure to this new asset class,â he said.
It is possible that âsome of the recent positive market moves across digital currencies have been from traders acting on the Bakkt launch,â Todaro said.
Bakktâs launch may be a positive sign for other highly anticipated products in the U.S., such as a bitcoin exchange-traded fund (ETF). Last week. Securities and Exchange Commission (SEC) Chairman Jay Clayton expressed concerns with the cryptocurrency marketâs maturity.
Derivatives products, like futures contracts, are more tightly regulated than the underlying spot market, and may be more comforting to regulators and potential institutional customers alike.
Todaro concluded:
âThis offering, in addition to the CMEâs, can help regulators become more comfortable with digital asset trading and market infrastructure.â
Bakkt CEO Kelly Loeffler image via CoinDesk archives