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Fidelity, Bullish On Bitcoin Futures, Square’s Bitcoin Revenue Jumps

Fidelity, "Diversify Into Bitcoin", Square’s Bitcoin Revenue Jumped To $65.5Mil., Crypto ‘Winter’ Is Good For Bakkt And More (#GotBitcoin?)

Payments company Square reported its first-quarter earnings today, revealing strong growth in bitcoin sales through its Cash app. Fidelity, Bullish On Bitcoin Futures, Square’s Bitcoin Revenue Jumps

Square’s Bitcoin Revenue Jumped To $65.5 Million In Q1, Its Highest Ever

Founded by Twitter co-founder Jack Dorsey, Square reported $65.5 million in bitcoin revenue for the first quarter of 2019. Bitcoin costs, however, are listed at $64.7 million in the unaudited quarterly report, for a bitcoin profit of roughly $832,000.

Those figures top previous all-time highs for Square: The fourth quarter of 2018 saw $52.4 million in bitcoin revenue and $490,000 in profit.

Bitcoin profits in Q1 2019 represent an 80 percent gain over the prior quarter. For all of 2018, the company reported $166 million in bitcoin sales.

Still, bitcoin remains a niche product for Square. Transaction-based revenue in Q1 topped $656 million, according to the report.

The company sells bitcoin to users through its Cash app, a service that expanded to all 50 U.S. states in August 2018.

Crypto ‘Winter’ Is Giving Bakkt’s Bitcoin Futures Plan a Boost, ICE Chief Says

Crypto winter has been a boon for highly-anticipated bitcoin futures exchange Bakkt, an executive from its parent firm said Thursday.

Jeffrey Sprecher, CEO of Intercontinental Exchange (ICE), said during the company’s Q1 earnings call that the ongoing bear market has been “helpful” for Bakkt, which was initially scheduled to launch last December, then delayed to January, then again indefinitely.

“It’s really been helpful that the cryptocurrency [market] went into what they call a winter, [because] it took some of the heat off the timetable to launch,” Sprecher said, adding that this was just one benefit.

Another benefit is that many crypto startups’ valuations have declined, creating buying opportunities for Bakkt, he said, explaining:

“We’ve actually been looking at a number of different companies and acquired a company earlier this week that wouldn’t have been available to us if the market was really hot, because the valuations were really hot.”

Indeed, on Monday Bakkt announced it had acquired Digital Asset Custody Company (DACC), which is developing a crypto-asset storage platform. (The price was not disclosed.)

That being said, the industry is continuing to mature, and Bakkt is working to help it do so, Sprecher said. The company has brought on a number of engineers through its recent acquisitions (Bakkt has also acquired some assets, including personnel, from Rosenthal Collins Group, an independent futures commission merchant).

“There’s a lot of interest still in this market,” he said.

Regulatory Questions

One of the primary causes for Bakkt’s delays are regulatory in nature – specifically, it is widely believed that the firm’s plan to custody bitcoin itself under federal supervision and settle contracts through its parent firm’s clearinghouse have placed it in a regulatory gray area.

While Sprecher did not specifically address what the holdups were, he did note that regulators are still trying to understand the asset class and how to regulate it.

“You can’t really get into the true institutional markets that we serve without being highly regulated and highly trusted so the juice is worth the squeeze,” he said, adding:

“It’s going well now, there were a lot of things that had to get sorted out with jurisdiction and custody and … banks and those issues that in my mind need to be resolved before adoption of the asset class and we’ve been at the forefront of [this].”

The bear market has helped in this sense as well, by giving both regulators and legislators in the U.S. some additional time to determine how they might eventually regulate this space, Sprecher said.

Sprecher did not address how much ICE has spent on Bakkt to date, though Scott Hill, chief financial officer at ICE, previously said that the firm planned to invest between $20 and $25 million in 2019. This figure comes on top of $182 million Bakkt raised from investors.

22% of Institutional Investors Have Some Digital Asset Exposure: Fidelity

Institutional investors are increasingly open to finding a place for digital assets in their portfolios, suggests new research.

A survey conducted by Fidelity Investments and published Thursday found that, already, around 22 percent of investors have some exposure to digital assets, while 40 percent say they are open to taking the plunge in the next five years. Of those that have exposure, most investments were made in the last three years.

Aimed to gain an understanding of how institutions, financial advisors and investors perceive digital assets generally and as part of an investment portfolio, the survey also found that over half (57 percent) prefer to invest in digital assets directly, while 72 percent favor investment products that hold digital assets. Fifty-seven percent said they’d prefer to buy investment products that hold digital asset firms.

For the research, the company said it polled over 400 U.S. institutional investors, including pensions, family offices, crypto and traditional hedge funds and financial advisors, as well as endowments and foundations.

“We’ve seen a maturation of interest in digital assets from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments,” said Tom Jessop, president of Fidelity Digital AssetsSM, a provider of institutional custody and trading services for digital assets.

Jessop continued:

“More institutional investors are engaging with digital assets, either directly or through service providers, as the potential impact of blockchain technology on financial markets – new and old – becomes more readily apparent.”

Regarding the appeal of digital assets to investors, the survey further found that the “characteristics” of digital assets had the widest appeal, with 74–80 percent citing that option. Just under half (47 percent), meanwhile, said digital assets appealed as an innovative technology, and 46 percent pointed to a low correlation to other assets.

On the negative side, price volatility, lack of regulatory clarity and a lack of fundamentals were seen as obstacles to investment.

“Price volatility, which was a primary concern of survey respondents, may dampen as the underlying custody, trading and financing infrastructure continues to develop in a direction that traditional market participants are familiar with.” Jessop said.

CFTC Chair: ‘Explosion of Interest’ In Crypto May Spawn New Clearinghouses

The U.S. Commodity Futures Trading Commission (CFTC) expects to see more companies apply to become federally-regulated clearinghouses as a result of growing interest in cryptocurrencies.

Chairman J. Christopher Giancarlo, testifying on “the state of the CFTC” before the U.S. House Agriculture Committee on Wednesday, said in his opening remarks that the clearinghouses his agency regulates are “critical single points of risk in the global financial system” which continue to grow and become more complex.

Clearinghouses are financial institutions that facilitate transactions between two parties, acting as intermediaries to ensure trust on all ends. The CFTC routinely examines these entities to identify any possible issues that may affect their ability to monitor or control their risks, Giancarlo told lawmakers. “The importance of these examinations to overall financial stability are all increasing.”

The agency regulates a number of registered clearinghouses within the U.S., as well as six located overseas and has exempted four foreign clearinghouses. This number will grow, Giancarlo said – especially with the introduction of crypto futures.

He added:

“The Commission anticipates new applications for clearinghouse registration resulting from the explosion of interest in cryptocurrencies; an area in which protection of the cryptocurrencies will be one of the highest risks.”

Crypto derivatives provider LedgerX operates as a clearinghouse already, while platforms like ErisX are still waiting for the CFTC to approve their applications to become derivatives clearing organizations (DCOs), which is a necessary designtation to operate as a clearinghouse.

Market intel
Giancarlo also addressed LabCFTC, the regulator’s fintech research group created to keep up with changing technology.

During his remarks, the Chairman highlighted blockchain and cryptocurrencies as two aspects of “rapidly changing markets and technological developments.”

LabCFTC was able to help the regulator anticipate some of this development and what an appropriate regulatory response might be, he said.

In particular, the CFTC has been able to independently analyze market data “without being reliant on self-regulatory organizations and market intermediaries,” he said.

Moreover, the CFTC was able “to determine the value of technological innovations,” he said, citing “crypto-asset-based futures products” as an example.

CME and Cboe both announced they were launching cash-settled bitcoin futures products at the end of 2017, and ErisX, LedgerX, Seed CX and Intercontinental Exchange’s Bakkt all plan to offer physically-settled bitcoin futures and forwards once they’ve achieved the necessary regulatory approvals.

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