Bakkt In It
On September 22, bitcoin futures began trading at Bakkt, an exchange and digital asset custodian backed by Intercontinental Exchange (ICE). Not only is CMTD an investor in Bakkt, but the firm had the pleasure of being involved in the first trade on the exchange at 8:02 p.m. ET, at a price of $10,115.
It’s not the only good piece of exchange news for crypto assets, as just two days before Bakkt opened for trading the CME Group confirmed what had been previously reported in The Block: options on the exchange group’s bitcoin futures are coming in Q1 2020, pending regulatory review.
The CME’s contract, launched in December 2017, saw first-day volume of 751 contracts, each representing five bitcoins. Now that contract’s ADV is ~7,000 contracts. Bakkt’s first day saw 73 total contracts trade (72 monthly futures and one daily future). One key way Bakkt differentiates its offering from the CME’s bitcoin futures is via the physical delivery mechanism and custodial element of the contract.
It’s worth noting that derivatives contracts take time to gain traction. Bakkt’s first days of trading are well in line with another recently launched contract, Cboe’s AMERIBOR Futures. Like bitcoin, AMERIBOR is challenging an entrenched financial trading arena — the realm of interest rate benchmarks. It also can take a while for futures commission merchants to feel comfortable enough to dive in, as has been the case with Bakkt.
Regardless of the initial volume, the launch of deliverable bitcoin futures as well as the steady traction being gained on regulated exchanges are yet more positive signs for digital assets. These products are on top of an array of perpetual swaps, options, and leveraged products in the global crypto trading realm, but have the benefit of U.S. regulatory oversight. (In fact, it was acquiring the necessary approvals that delayed the launch of Bakkt, which was initially planned for November 2018.)
Bakkt’s regulatory approvals and the existence of bitcoin trading on the CME continue to prove that bitcoin is a viable trading instrument. But more needs to be done, in part because regulators don’t seem to put much stock in these developments. In the 24 hours prior to the CME’s bitcoin options announcement, SEC Chairman Jay Clayton said at a conference that he does not imagine bitcoin trading on a major exchange until it is “better regulated.” Meanwhile, new CFTC Chairman Heath Tarbert said on CNBC that crypto derivatives product interest is growing, but “demand is far below [what] we see for other commodity classes.”
To those points, the fact remains that the CME Group is a major exchange. It is the largest derivatives exchange on the planet, with a market cap greater than $75 billion. And while Cboe Global Markets decided to delist its bitcoin futures earlier this year after brief competition with the CME, it was another major exchange (at that point bigger than it had ever been, after the acquisition of BATS in 2017) that was trading bitcoin. Bakkt-parent ICE, which also owns the NYSE, is, similarly, an exchange giant, with a market cap greater than $50 billion. Moreover, while not sizable institutions like the CME, ICE, and Cboe, there are other U.S. domiciled crypto exchanges like Kraken, Bittrex, Coinbase, and Gemini. Then there are Seed CX and ErisX, both CMTD investments, that, pending the proper regulatory approvals, will also be entering the derivatives fray. (ErisX and Seed CX both have their spot markets up and running.)
All of this means better hedging, and a more welcoming environment for any institutional participants, market makers, or traditional individual futures traders who want to get exposure to this emerging asset class, as each trade, custodial development, use case, and pizza purchase slowly adds to the crypto puzzle.
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