Bakkt set to launch
Bakkt, a subsidiary of the Intercontinental Exchange (ICE), which owns the New York Stock Exchange, was granted approval from the U.S. Commodity Futures Trading Commission for crypto-settled Bitcoin futures.
These contracts would allow institutions to buy and sell the rights to Bitcoin at different intervals into the future, allowing institutions to gain exposure to the asset while acting as a tool for more sophisticated trading strategies.
Unlike existing Bitcoin futures contracts from the Chicago Mercantile Exchange (CME), which are only settled in cash, contracts with physical settlement can act as a “transparent price discovery mechanism.” Methods for price discovery with institutional participation are critical, especially when considering reports that 95 percent of trading volume is wash trading.
The New York State Department of Financial Services also gave approval to Bakkt Trust Company, Bakkt’s qualified custodian, to warehouse Bitcoin for these contracts. These Bitcoins will be protected by $125 million in insurance, said the firm.
Regulators were hesitant
Up until the middle of this year regulators have been understandably hesitant to grant approvals for Bitcoin futures. “Cryptocurrency such has Bitcoin have been exploited to support billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs, and human trafficking,” as said by U.S. Treasury Secretary Steven Mnuchin in July.
These features make constructing trustworthy financial instruments based on cryptocurrency risky if not properly regulated. As such, caution isn’t surprising from the whole host of government agencies that oversee the industry, including the SEC, FinCEN, the IRS, and the CFTC.
Bakkt’s approval represents a historic moment in the crypto-industry, constituting the first approval for physically-settled futures.
Prior to Bakkt, LedgerX claimed to have won CFTC approval for its crypto-settled futures in late June. But, the launch was botched after the CFTC stated that LedgerX had not received all of the necessary approvals a few days later. The matter then escalated with the CEO of LedgerX publicly threatening the agency with legal action. Meanwhile, Bakkt’s other major competitors, ErisX and SeedCX, are still yet to get the greenlight from the CFTC.
Contracts will begin trading on Sept. 23 with daily and monthly futures offered on Bakkt’s partner exchanges, ICE Futures U.S. and ICE Clear U.S.
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