As the Bakkt launch date nears, details appear and speculation abounds

Bakkt exchange

Crypto enthusiasts have been waiting a year for the launch of the Bakkt exchange, the brainchild of the Intercontinental Exchange (ICE), the owner and operator of the New York Stock Exchange (NYSE). Circle September 23rd on your calendar as the official “Go Live” date, but the lead up has included required deposits and beta testing of the new futures platform, the state-of-the-art, fully regulated and with every bell and whistle that institutional investors demand. It has been built, now will they come?

Details of how the futures contracts will be offered, handled, and settled have slowly made there way to the public domain, while speculation persists as to how these “physically settled” BTC contracts will affect an already turbulent market. For one thing, any hint at “turbulence” in the Bitcoin market has dissipated like snow in the proverbial desert. Volatility has hit lows not seen since last May, a harbinger of market uncertainty, as the “watershed” launch in late September quickly counts down to reality.

What do we know at this point?

Over the last year, we have been told that the futures markets are the domain of the institutional investor, a hedging “tool” for their special “toolbox”. Typically, the buy-in to participate is well beyond what any retail trader might consider. The news now, however, is that a deposit of $3,900 is required to “walk in the door”, which does not sound that unreasonable, but the playing field is not one that amateurs should willingly tread. There is also what is called a “speculative” requirement that initially is set at $4,290.

John Todaro, director of research at TradeBlock, explained to Coindesk:

Speculative requirements are for those accounts that are speculating on the price move on bitcoin through futures contracts. The CFTC and other regulating agencies have rules in place to protect futures markets from excessive speculation, which can lead to deviant price fluctuations, volatility, etc.

Futures contracts are special in the fact that they are a unique way to participate in a market without any ownership obligations. You do not have to buy Bitcoin to be involved in a futures contract, but depending on the side of the equation you choose, you may have to deliver Bitcoin to the Bakkt Warehouse on the designated settlement date. The CME exchange has been settling in cash, the futures exchange of choice in the U.S., up until a week or so from now. When Bakkt contracts mature, there could be rush to buy or sell BTC to cover exposures, suggesting that there will be market implications in future.

There will be both daily and monthly futures contracts offered by Bakkt. The technical details may only make since for a “seasoned” futures trader, but Coingape published these details for the record:

  • Daily BTC Futures Contracts: “This is a physically-settled daily futures contract for bitcoin held in the Bakkt Warehouse with the Trading Screen Product Name “Bakkt BTC (USD) Daily Future” and Trading Screen Hub Name “ICUS”. The commodity code is BTC and the contract size is 1 BTC. The minimum price fluctuation set is $2.50 per bitcoin or contract, and block trades may be executed at $0.01. There is no daily price limit for these contracts.”
  • Monthly BTM Futures Contracts: “This is a physically-settled monthly futures contract for bitcoin held in the Bakkt Warehouse with the Trading Screen Product Name “Bakkt BTC (USD) Monthly Future” and Trading Screen Hub Name “ICUS”. The commodity code is BTM and the contract size is 1 BTC. The minimum price fluctuation set is $2.50 per bitcoin or contract, and block trades may be executed at $0.01. There is no daily price limit for these contracts.”

Is that clear for everyone? If you need more clarity, visit the Bakkt website at your convenience. There are more details related to Exchange for Related Positions (EFRPs), EFRP transactions, Block Trades, and Margin rules for both BTC and BTM.

How will the Bitcoin Market react?

Many analysts have attributed the recent rise in Bitcoin prices back over the $10,000 threshold as due to pent-up anticipation for the Bakkt launch. In circumstances like this one in other markets, you might expect a “sell-on-the-news” response later this month, i.e., the market price might fall markedly when all is said and done. When the CME opened, Bitcoin prices fell dramatically, resulting in Crypto Winter. A subset of the analyst community foresees a similar “crash” as a real possibility.

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