The first day of Bakkt’s Bitcoin futures product saw less than 2 percent of CME’s debut day trade volume, prompting speculation over whether or not the highly anticipated contract will deliver on its mission statement as a key piece of infrastructure in the cryptocurrency market.
By the close of Monday, a total of 72 BTC had been traded on Bakkt—75 times less volume seen than December 2017 launch of CME’s cash-settled futures offering, which saw the equivalent of 5,298 BTC traded on its first day, as noted by Alex Kruger.
Just one of Bakkt’s 72 BTC volume was traded on the daily contract, the company’s initially announced, flagship offering, with all other volume taking place on the monthly futures market.
What’s the hold-up?
Since its announcement in August 2018 the physically delivered futures product has been promoted by InterContinental Exchange-owned Bakkt as the answer to “trusted price formation” in the crypto futures markets, undoubtedly in contrast to its cash-settled competitor CME (that of CBOE, the sole other regulated BTC futures product, was shuttered in March 2019.)
Bakkt weathered a series of delays in bringing the product to market, ultimately launching 10 months later than scheduled after regulatory hiccups prevented the company from obtaining a trust license from the New York Department of Financial Services (NYDFS), key to its qualification as a regulated custodian.
CME with its cash-settled product would pose an imposing rival in the regulated Bitcoin futures market, traditionally seeing robust and steadily increasing volumes. In August the company hit headlines with the revelation it was up 130 percent year-to-date with an average daily volume of 7,237 contracts, or 36,185 BTC, and shortly after announced it would be adding Bitcoin options contracts in 2020.
As such the success of Bakkt’s contract has been widely supposed to depend on the interest of institutions in having exposure to Bitcoin itself, unlike the cash-settled CME product—and yet physical delivery is, in fact, an absolute rarity in the futures markets, as pointed out by Kruger.
Yet physically settled Bitcoin futures may be fundamentally more useful than cash-settled contracts to key market participants. According to Genesis Capital CEO Michael Moro, the nature of the product gives market-makers a pure hedge in the eyes of the U.S. Securities and Exchange Commission (SEC), something apparently the CME contract cannot deliver.
Granted, it may entirely unreasonable to measure against the explosive debut of the CME product—a success which has been suggested by many to have been fuelled by institutions aiming to collapse the price of Bitcoin down from its all-time-high for profit.
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