By
Temitope Olatunji
April 26th, 2024
Bitcoin futures contracts platform Bakkt is determined to launch its services in the third quarter of this year and gaining approval from the NYDFS would allow it to operate as a limited-purpose firm.
The long-awaited launch of the cryptocurrency exchange subsidiary by the Intercontinental Exchange (ICE) Bakkt, could happen in Q3.
The Bitcoin futures contracts platform is however still waiting for the approval of the New York Department of Financial Services (NYDFS) in order to operate their so-called Bakkt Warehouse, which would allow Bakkt to work as a limited-purpose trust company.
If it’s approved, Bakkt Warehouse should serve as a qualified Bitcoin custodian that supports its physically delivered futures.
One trading executive, who requested to remain anonymous said that the future is different from the warehouse, but the product depends on the warehouse.
In the document published in May this year, the company said they had provided the regulated infrastructure for traders to deliver and receive Bitcoin for dollars in standardized settlement cycles. The futures contracts will be cleared by ICE Clear U.S. and will be compliant with CFTC regulations.
And while Bakkt is finally near its platform launch, there are some people in the industry that are saying there are some issues that might get in the way.
Some of them think that the company’s move is too risky, claiming that the guaranty fund set by the company is too small to cover positions at risk. ICE will only reportedly contribute $35 million to start the fund for losses related to Bitcoin contracts.
Ricky Li, co-founder of trading firm Altonomy says that while guaranty funds are usually required and administered by a state as a safeguard for if insurers are unable to pay policyholders, what Bakkt does isn’t normal practice in the clearing risk management system.
He compared the size of Bakkt’s funds, which have around $400 million in open positions at risk with its $35 million guaranty fund. Bakkt, however, seems to acknowledge this inflated risk, because, in the materials provided by ICE, it explains that there are plans to increase the guaranty fund over time, after the launch.
They agree that it was low, but not “alarmingly” so and that the plan is still good enough to attract traders like themselves. Li compared it with other popular exchanges like BMX for which he said, has minimal transparency for their consumer protections.
Let’s not forget that last week Bakkt’s Bitcoin Futures launched the user acceptance tests. The mission is to support the development of trusted infrastructure for securely transacting in the new market for digital assets. From the company, they said this launch ushers in a new standard for accessing crypto markets.
Bakkt itself hasn’t had an easy way to the top. First time the launch was due last November. Then, problems getting the project past regulators showed up and the launch suffered further delays in January that was also delayed. The United States Commodity Futures Trading Commission reportedly caused delays by conducting an investigation regarding regulatory compliance and potential market impact.
One thing is however sure. Bakkt will draw resources from some big companies with knowledge in fields of risk management and technology to create a federally regulated platform. Once investors feel at ease trading in regulated environment volatility should smoothen.
Also, by providing a qualified custodian for cryptocurrencies, Bakkt could enable various institutional investors to make investments in the crypto asset class.