The regulation of the contracts offered by Bakkt could successfully attract institutional investors who trying to avoid the volatility risks of some cryptoactives
This July 22nd is the date that the institutional platform of cryptocurrencies Bakkt scheduled to start testing its new service Bitcoin futures (BTC). These assets will be given physically, according to what the company announced in its blog recently.
Futures trading is a practice that is turning into a more common one in the world of cryptoactives. It consists of buying or selling a product or financial instrument on a specific date and at a specific price. This exchange can be made in parts, but it should not exceed the established date.
Once the contract has been started, both parties buy and sell at the agreed price, without depending on the real market price at the moment of the execution date. The idea is to establish the prices of a certain cryptoactive so that, when the contract expires, the agreed amount is paid to the merchant or seller, but in cash, instead of in cryptocurrencies.
Futures contracts “allow us to take futures positions, along with their risks and opportunities, without having to assume the delivery of the underlying asset”, said the digital currency operations broker, TradeStation. In addition, this negotiation controls the risks a little bit when it comes to a volatile asset, as it is the case of some cryptocurrencies.
The contracts are conducted thanks to a futures market, which acts as an intermediary. This is the role that Bakkt wants to play, but with the intention of liquidating its contracts in physical Bitcoin, instead of using fiat currencies. These futures will be included in the Intercontinental Exchange (ICE) Future U.S. and they will be liquidated by ICE Clear U.S., according to the CEO of Bakkt, Kelly Loeffler.
Overcoming Obstacles Like a “Trip to the Moon”
“On July 22nd, two days after the 50th anniversary of Apollo 11, Bakkt will begin testing user acceptance for their futures Bitcoin listed and traded on ICE Futures US, and authorized by ICE Clear US”, the Chief Operating Officer of Bakkt, Adam White wrote on the blog.
Bakkt has suffered multiple delays to conduct this project, since it announced its plan in August 2018. These problems seem to be solved, although until now no further details about the offers of future contracts are known. It is known that companies should be identified, irregular activities will be notified to US authorities and Bakkt would cover risks between buyers and sellers, according to a press release.
“This is not a small step. This launch will stablish a new standard for accessing the crypto markets. The institutional participation in crypto exchanges is still limited, due to problems such as infrastructure of the market and regulatory security”, White added in the blog.
White compared this initiative with the passage to the first moon landing, which would have occurred in 1969. His intention was to refer to the obstacles that the company had to overcome to offer interested investors regulated cryptocurrency products.
The announcement of Bakkt takes place the same week in which it was shown that the Bitcoin futures of CME Group reached a record volume during last May. All of this even when CBOE, BTC’s first futures contracts provider, announced that after current contracts expire, it will stop offering new contracts for the moment.
The regulated custody of future contracts could be an element that attracts the attention of institutional investors. Representatives of Bakkt consider that they could be very successful and contribute to more companies to acquire cryptocurrencies or participate in operations to exchange them without fear of market volatility, a crucial aspect for a faster adoption or not of the new digital assets that come to stay.
By María Rodríguez