The first day of Bakkt’s Bitcoin futures saw less than 2 percent of the CME’s debut day trading volume, prompting speculation over whether the highly anticipated contract will deliver on its mission of being a “key piece of infrastructure” in the cryptocurrency market.
By close Monday, a total of 72 BTC were traded on Bakkt. The trading represents 1/75 the volume seen on December 2017 when CME’s cash-settled futures launched, which saw notional contracts of 5,298 BTC traded on open day, noted Alex Kruger.
Just 1 of Bakkt’s 72 BTC volume was traded on the daily contract, the company’s initially announced flagship offering with all other volume taking place on the monthly futures market.
What’s the hold-up?
Since its announcement in August 2018, the physically delivered futures product has been promoted by InterContinental Exchange-owned Bakkt as the answer to “trusted price formation” in the crypto futures markets, undoubtedly in contrast to its cash-settled competitor CME (with CBOE, the only other regulated BTC futures product, shuttering in March 2019.)
Bakkt weathered a series of delays in bringing the product to market, ultimately launching 10 months later than scheduled after regulatory hiccups prevented the company from obtaining a trust license from the New York Department of Financial Services (NYDFS), key to its qualification as a regulated custodian.
CME with its cash-settled product poses a worthy rival in the regulated Bitcoin futures market, traditionally seeing robust and steadily increasing volumes. In August the company hit headlines when trading was up 130 percent year-to-date with an average daily volume of 7,237 contracts, or 36,185 BTC, and shortly after announced it would be adding Bitcoin options contracts in 2020.
As such the success of Bakkt’s contract has been widely supposed to depend on institutional interest in Bitcoin exposure. Physical delivery is a unique feature in the futures market, as pointed out by Kruger.
Physically settled Bitcoin futures may be fundamentally more useful than cash-settled contracts to key market participants. According to Genesis Capital CEO Michael Moro, the nature of the product gives market-makers a pure hedge in the eyes of the U.S. Securities and Exchange Commission (SEC), something the CME contract cannot deliver.
Granted, it may entirely unreasonable to measure against the explosive debut of the CME product—success which has been suggested by many to have been fuelled by institutions aiming to collapse push down the price of Bitcoin from its all-time-high for a tidy profit.