Bakkt commences Bitcoin futures contract testing

Posted: 23 July 2019 5:29 pm

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Bakkt's long-awaited Bitcoin vehicle has hit the road for a test drive.

Bakkt has commenced testing today, "with participants from around the world", it has announced.

The long-awaited test launch comes almost exactly a year after its plans were made public. There are two reasons in particular that Bakkt has been so hotly anticipated.

First, Bakkt is the brainchild of Intercontinental Exchange (ICE), which operates a dozen different exchanges, the best known of which is probably the New York Stock Exchange. At the time, Bakkt represented an enormous leap forward for institutional Bitcoin buy-in, and it still does.

Second, and more to the point for the keener market-watchers, its futures contracts are going to be physically settled.

Price discovery

Bitcoin derivatives made their way to Wall Street long before Bakkt, with Cboe Global Markets and CME (Chicago Mercantile Exchange) both launching Bitcoin futures contracts right as Bitcoin was at its frothiest in late 2017. Goldman Sachs did the same by launching Bitcoin price-tied products in May 2018.

But none of them are physically settled, while Bakkt is.

Basically, every major traditional institution that's done the Bitcoin boogaloo has done so by creating a new financial product that simply tracks Bitcoin prices. Those products tracked the markets, but all the money passing through them wasn't actually touching Bitcoin.

By contrast, Bakkt's Bitcoin bet includes physical settlement. This means participation on Bakkt can actually start impacting Bitcoin prices, and strong demand for Bitcoin trading there might push up prices around the markets.

This in turn has two positive impacts on the cryptocurrency markets.

First, it allows for fairer and more reliable Bitcoin price discovery. A lot of people very correctly don't trust trading volumes and market movements on crypto exchanges, but Bitcoin trading on a platform backed by a player like ICE gives people more reassurance that Bitcoin price movement is being driven by actual supply and demand. This helps directly solve the problem currently preventing regulatory approval of Bitcoin ETFs.

Second, the fact that Bakkt is using physically delivered contracts means it's cracked a tough regulatory, custody and security nut, which opens the door for other big players in the traditional finance world to do so the same.

The Bakkt test launch shows how far cryptocurrency has come. The Twitter crypto scam bots prowling beneath its launch announcement show how far there is left to go.

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Disclosure: The author holds BNB and BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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