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Bakkt Is Scheduled To Start Testing Its Bitcoin Futures Contracts

Bitcoin futures platform Bakkt is scheduled to begin testing its new contracts Monday. Bakkt Is Scheduled To Start Testing Its Bitcoin Futures Contracts Today (#GotBitcoin?)

Bakkt Is Scheduled To Start Testing Its Bitcoin Futures Contracts Today (#GotBitcoin?)

Nearly a year since revealing its ambitious vision, Intercontinental Exchange (ICE) is still waiting on regulatory approvals to take the platform live. Still, despite having to delay its new market multiple times, the parent of the New York Stock Exchange is moving forward with plans to offer potentially the first physically-settled bitcoin futures in the U.S.

Bakkt announced in May that it would begin testing its bitcoin futures contracts in July, later firming up a July 22 test date.

It will apparently be testing two different types of contracts Monday: a daily and a monthly contract. Bakkt aims to list the futures, which would be traded through ICE Futures U.S. and cleared through ICE Clear U.S., the parent company’s clearinghouse.

It is unclear what specifically will be involved in the testing process. Bakkt did not reply to multiple requests for comment.

The company plans to offer U.S. traders access to physically-settled bitcoin futures contracts, which differ from the cash-settled futures contracts that Chicago exchanges CME and Cboe offered starting at the end of 2017. With cash-settled contracts, traders receive the cash equivalent to the contract’s value when it expires, while with a physically-settled contract they receive the actual underlying commodity – in this case, bitcoin.

Bakkt hopes to draw fresh institutional funding to the bitcoin ecosystem with its regulated product, which may attract investors wary of the broader market.

Launch Delays

Bakkt initially announced a December 2018 launch date, before delaying to January 2019. The company announced another, indefinite delay later as it continued working with regulators to secure the necessary approvals to launch.

While Bakkt was initially said to have asked the Commodity Futures Trading Commission (CFTC) to approve its new product, Bakkt announced in May that it had filed to self-certify the contracts instead.

Under a self-certification process, a company essentially verifies for the CFTC that its futures contracts fulfill all legal requirements. The CFTC can review this certification, but unless there are any legal or regulatory violations, it cannot stop the product from moving forward.

While Bakkt has self-certified its contracts, it cannot launch the product until it secures a trust company charter through the New York Department of Financial Services. It is unclear if Bakkt has also applied for one of New York’s signature BitLicenses.

Bakkt isn’t alone in trying to launch the first physically-settled bitcoin futures contracts in the U.S.: LedgerX and ErisX have both recently received CFTC approvals to offer their own such product. Neither company has yet announced a firm timeline for when they might launch.

Separately, Seed CX wants to launch forwards contracts, though it is waiting on regulatory approval.

Updated: 11-12-2019

CME Group Announces Launch Date of Options on Bitcoin Futures Product

The Chicago Mercantile Exchange (CME) Group has announced the date it expects to launch options on Bitcoin (BTC) futures in a statement on Nov. 12.

“In response to growing interest in cryptocurrencies and customer demand for tools to manage bitcoin exposure, CME Group will launch options on Bitcoin futures (BTC) on January 13, 2020,” the company revealed in the announcement. The CME Group said that the upcoming product is still pending regulatory approval.

Contract Specifications

CME Group specified that one Bitcoin futures contract will represent 5 BTC quoted in U.S. dollars, with a block minimum of five contracts. The announcement reads:

“Option exercise results in a position in the underlying cash-settled futures contract. In-the-money options are automatically exercised into expiring cash-settled futures, which settle to the CME CF Bitcoin Reference Rate (BRR) at 4:00 p.m. London time on the last Friday of the contract month.”

CME Group’s Intentions And Expectations On BTC Futures Options

In September, CME Group revealed plans to roll out options on BTC futures by Q1 2020. At the time, Tim McCourt — CME Group global head of equity index and alternative investment products — said that the new products are intended to help institutions and professional traders manage spot market BTC exposure, and enable them to hedge BTC futures positions in a regulated exchange environment.

In October, the company said it expected to see high demand in Asia for its forthcoming BTC options product. McCourt noted that options would likely enable Bitcoin miners to more accurately hedge the costs of their production.

At the same time, McCourt also stated that CME Group has no current plans to launch physically-settled Bitcoin contracts.

Updated: 11-28-2019

Antonopoulos: Cash-Settled Bitcoin Futures Traders Face ‘Black Hole’

Bitcoin (BTC) educator Andreas Antonopoulos says that while futures markets may indeed place a damper on the cryptocurrency’s price, the stakes are different to what you might think.

In a Nov. 27 interview with YouTuber “Ivan on Tech,” Antonopoulos argued against the grain of commonplace fears about the adverse price impact that Bitcoin futures trading has on spot prices.

He suggested it’s the speculators — not the HODLers — who truly have something to fear.

It’s not conspiracy: “it’s the Treasury’s job”

Cash-settled Bitcoin futures — which have been trading since December 2017 on both the Chicago Mercantile Exchange (CME) and Chicago Board of Exchange (CBOE) — have consistently drawn suspicion from traders and analysts, with many contending that Bitcoin’s price is vulnerable to manipulation in advance of contract settlements.

Antonopolous Started The Discussion By Conceding These Fears Are Likely True:

“We know for a fact that when the Bitcoin bubble started to go up really fast in 2017, the U.S. Treasury decided to fast-track the deployments of futures markets in order to stop that bubble.

A lot of people see that as conspiracy, but if you look at the mandate of institutions like the Treasury, that’s actually their job.”

Price suppression, he claimed, is not a matter of conspiracy, it’s a market-based approach to enable those who don’t believe in cryptocurrencies to take a contrarian position by shorting.

This has, of course, put a damper on the price, he said — but it’s also reduced volatility.

A market comprised purely of positive believers — or at least those willing to hold the coin itself — is going to be very “one-sided,” he noted. “It’s not really a market with full liquidity on both sides of the order board.”

Ironically, naysayers who had once decried volatility are now decrying futures “manipulation,” he quipped.

Unlimited Risk

Importantly, Antonopoulos said, futures critics often overlook the real stakes of cash-settled cryptocurrency shorting.

There’s something “really dangerous about doing cash-settled naked shorts against a cryptocurrency,” for when you borrow Bitcoin as part of a short, your liability — your potential risk — is unlimited:

“If they [institutional investors] faced a situation of a renewed Bitcoin bubble and they continued to take a contrarian position against the market, they’d be throwing fiat into a black hole.”

As reported, Intercontinental Exchange (ICE)’s Bakkt platform has recently confirmed its forthcoming launch of a cash-settled Bitcoin (BTC) futures contract.

The new product will be settled against data from Bakkt’s existing physically-delivered Bakkt Bitcoin (USD) Monthly Futures contract — a pioneering product that was the first to give futures traders direct exposure to the underlying cryptocurrency.

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