Bitcoin futures trading on Bakkt, the new platform announced by the Intercontinental Exchange in August, will begin on December 12, according to a recent notice issued by its owner. Each contract on the platform will consist of one bitcoin. The minimum tick size for trading is $2.50 per bitcoin. The futures contract will be cleared through ICE Clear US, which also clears trades for NYSE.
Backed by a diverse array of big names, including Starbucks Corporation (SBUX) and Microsoft Inc. (MSFT), Bakkt is expected to be a game changer in the cryptocurrency investment industry. Bitcoin futures on the exchange are physically settled, meaning that the party will receive delivery of a bitcoin from the Bakkt Digital Asset Warehouse at the end of the contract period. In contrast, futures contracts at CME and Cboe are cash-settled and based off the price of bitcoin at underlying cryptocurrency exchanges.
Will It Lead To Approval Of Bitcoin ETFs By The SEC?
The Bakkt announcement has set off a flurry of speculation that its launch portends the approval of bitcoin ETFs by the Securities and Exchange Commission (SEC). This is primarily because ICE’s exchange addresses concerns outlined by the SEC in a letter explaining its reasons for rejecting a bitcoin ETF at the beginning of this year.
Bakkt will officially begin clearing Bitcoin futures on Dec 12, 2018.
Previously, the US SEC rejected 9 Bitcoin ETFs that based their price on the futures market because the BTC futures market was not sufficiently liquid.
The entrance of Bakkt could change the viewpoint of SEC pic.twitter.com/BhGRCR7Qe2
— Joseph Young (@iamjosephyoung) October 22, 2018
— Michael Novogratz (@novogratz) October 22, 2018
The first concern is price formation. The federal agency had expressed doubts about valuations used for bitcoin ETFs, given that the underlying cryptocurrency exchanges used to determine the price of a single bitcoin were outside regulatory purview.
The Bakkt management has set itself the task of addressing “unique requirements of regulated institutions, their clients, and stakeholders, such as merchants and consumers.” CEO Kelly Loefler set out her team’s priorities to achieve these goals in a September blogpost.
Another problem cited by the SEC was the absence of a custody provider for cryptocurrency delivery. While custody providers exist for cryptocurrencies, the presence of well-known institutional names, who bring established and secure practices into the space, is necessary to provide it with a stamp of legitimacy. In recent times, Goldman Sachs Group, Inc. (GS) and Fidelity Investments have either expressed interest or launched custody solutions for cryptocurrencies. Warehousing for bitcoin is among the services that Bakkt plans to offer and ICE's backing will ensure that is among the major players in institutional custody.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.21 bitcoin and 1 Litecoin.