Bakkt, a Bitcoin futures market operated by ICE, the parent company of the New York Stock Exchange (NYSE), is close to receiving a green light from the U.S. government.
As CS reported on December 21, Bakkt has been working with the Commodities and Futures Trading Commission (CFTC) to have its business plan approved, which revolves around the physical delivery of Bitcoin to its investors.
What Separates Bakkt From Other Bitcoin Futures Markets
Existing Bitcoin futures exchanges in the U.S. market such as CME and CBOE are cash-settled, meaning that their contracts are settled with the U.S. dollar and not with Bitcoin.
As such, given the limited supply of CME and CBOE contracts, the effect of the two futures market on the actual price of Bitcoin could be minimal.
Kelly Loeffler, the CEO of Bakkt, said that cash-settled contracts have some benefits but a physically-settled Bitcoin futures contracts are necessary to strengthen the infrastructure supporting the asset.
“It’s great to have cash-settled, but there’s a need for physical delivery,” said Loeffler, emphasizing that the objective of Bakkt is to create a comfortable environment for investors to invest in digital assets.
The physical delivery of Bitcoin guaranteed by the Bakkt Bitcoin futures market will provide investors with crypto asset custody and deliver the asset to every investor in the market. Depending on the demand for the asset and the trading activity on Bakkt’s exchange, the scheduled launch of Bakkt in January could affect the supply of the dominant cryptocurrency and lead to an increase in the Bitcoin price.
Jake Chervinsky, a government enforcement defense and securities litigation attorney at Kobre & Kim, said:
Also noteworthy is the fact that Bakkt will custody and deliver real bitcoin. That means institutional inflows would reduce supply and thus (maybe) increase price too. This is different from other regulated futures markets like CME and CBOE, which only deal in cash-settled futures.
0/ @Bakkt plans to launch next month on December 12, and some people are hoping it kicks off another crypto bull run. Now seems like a good time for a quick discussion on:
– what Bakkt is
– why it might be exciting
– when it will get regulatory approval
— Jake Chervinsky (@jchervinsky) 6 Kasım 2018
In the U.S., ICE is recognized as a CFTC-registered designated contract market that allows the institution to self-certify futures products without the approval of the CFTC.
However, a Bitcoin futures market is structurally different from many of the markets ICE supports and as such, even if ICE does not need a direct approval from the CFTC, Chervinsky noted that it still needs to work with the commission to receive full approval of its newly developed market.
“But just because ICE can self-certify Bakkt’s futures contracts doesn’t mean Bakkt can totally ignore regulatory approval. The CFTC still has jurisdiction over self-certified financial products. Bottom line: if the CFTC doesn’t want a futures contract to trade, it won’t,” explained Chervinsky.
One Step Closer
Bakkt is one step closer to begin its operation on Jan 24, 2019, its scheduled date of launch. If the institution can secure the approval of the CFTC by early January, it is expected to open the Bakkt futures market by the publicly released debut date.
The potential impact on the price of Bitcoin by Bakkt and other pending investment vehicles such as an exchange-traded ffund(ETF) remains uncertain. But, due to the physically-settled element of Bakkt’s product, it will likely have a noticeable effect on the price trend of the digital asset.