An Analysis of Bakkt Bitcoin Futures Trading Platform

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At long last, the highly awaited Bakkt platform, a regulated bitcoin futures market, is finally open for trading. What could this mean for the cryptocurrency industry as a whole and what would it change?

What is Bakkt

The company aims to create a platform where institutions, merchants, and consumers can safely trade digital currencies in a secure and trusted system.

What does Bakkt do?

What sets Bakkt apart from other bitcoin futures contracts, like the ones offered by the Chicago Mercantile Exchange (CME), is that they deliver “physical” bitcoins. The instrument settles in actual bitcoin upon liquidation instead of cash equivalents.

Bakkt offers traders two types of derivatives: 

Daily contracts which lets buyers receive their bitcoin in a month’s time.

History

At that time, the launch of the exchange was postponed on several occasions due, in part, to regulatory hurdles as well as the work required to prepare its services.

The Launch

On its first day, Bakkt handled merely 72 monthly contracts, followed by 166 the next day. This is a far cry compared to the time when CME started its Bitcoin contract in December 2017, with 221 contracts traded in the first hour, and several thousands now trading on a daily basis.

To make matters worse, the price of Bitcoin dropped below $8,000 for the first time in 3 months, leading some analysts to suspect a causal relation between the two events.

Give it time

After all, institutional investors have always steered clear from bitcoin in the past. It would be presumptuous to assume that they would hastily jump in now because Bakkt did so.

Bigger fish and smaller fish will likely follow eventually

Bakkt’s involvement in crypto could be a catalyst for larger firms to come on board at some point, depending on how it manages to navigate through regulations from here on. 

Having more institutional involvement will mean more influx of capital, which is likely to attract more retail investors. This could lead to a snowball effect that would result in another 2017-like bull run. But don’t get your hopes too high just yet.

Downsides

Government agencies will have access to all records of trading and user information. Mechanisms will also be in place to detect “illicit activities”. Furthermore, KYC and other stringent authorization will be imposed on traders.

When mass adoption?

In a way, regulated trading platforms can help attain that goal since it will attract more people to the space. However, they could simply be a blip in the timeline.

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