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Bakkt’s Bitcoin Futures Market Launch Meets Mixed Reviews

September 24, 2019


Bakkt’s Bitcoin Futures Market Launch Meets Mixed Reviews

On September 22, the bitcoin-settled Bakkt market began trading bitcoin futures contracts on the Intercontinental Exchange, which owns the New York Stock Exchange (NYSE). At the end of the first day of trading, the world observed a volume of 72 bitcoin without much impact on the overall price of bitcoin.

Opinions on the launch vary; especially as the much-hyped Bakkt market did not, ultimately, create the splash many expected.

Market Comparisons

This is not the first futures market for bitcoin. Both CME Group Inc. and Cboe Global Markets Inc. offer bitcoin futures contracts to investors; and their initial trading volume makes Bakkt’s pale in comparison.

The bitcoin volume on the first day of trading for the Cboe contracts was 3,969 BTC and for CME it was 5,270 BTC. This is a pretty significant difference.

Trader Nick Cote, who also notes the importance of how contracts
are settled, adds that “CBOE + CME launched in a hype phase, while 2019 volume
has been quiet. Bad timing?”

But there is also a huge difference involved here which makes Bakkt unique; that is the physical delivery of bitcoin at the close of a contract whereas the other two markets are cash-settled.

In fact, cash settlement is the norm for 98% of futures contracts, according to trader Alex Kruger.

Bad timing or not, Bakkt’s launch was still 73 times less
than CME’s volume and 55 times less than Cboe’s.

In my opinion, this indicates it is not a symptom of a bad market or any lack of preparation on the traders part as there was certainly enough institutional awareness around Bakkt.

The issue, to me, was an overhyping of Bakkt which led to unreal expectations for a product that’s impact will likely be gradual. A company blog post, for example, adopting the “moonshot” terminology which only feeds into the “wen moon” crowd that plagues blockchain and cryptos.

Certainly, bitcoin price discovery, which is one aim of Bakkt, would be much easier without this group’s presence.

Trading on the Price vs. the Product

Simply put, in my opinion, the extreme difference in the trading volume is due to the physical delivery of bitcoin at the end of the contracts. These institutional and traditional traders still want their paper money; especially as cryptocurrencies and the blockchain industry is still highly speculative.

There are plenty of traders using CME or Cboe who never
intend and may never come to purchase bitcoin.

Beyond the hype, however, Bakkt should not be tossed to the side because it didn’t match the volume of similar, but not identical, markets.

Ultimately, cryptocurrency and bitcoin are about choice; and over time, as people grow to want to trade the product over the price, this market will serve those traders well.