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While some traders don’t have any specific expectations, others strongly believe that the launch of physically-settled Bitcoin futures will mark a huge milestone for the industry. But what exactly will Bakkt offer?
Bakkt is a platform of IFUS (ICE Futures US Group). IFUS is ultimately owned by Intercontinental Exchange (ICE). Among other holdings of this company group, there is also the very well-renowned and famous New York Stock Exchange.
The main idea that the ambition to launch Bakkt is based on is to make physically-settled Bitcoin futures available in the United States. Despite the fact that these BTC futures are physically-settled, you won’t have a possibility to get anything that you can hold in your hand when your contracts expire. As you know, Bitcoin is a virtual currency which is quite different from regular fiat currency coins. It does mean, however, that you will receive actual Bitcoin units, and not only the corresponding amount or value.
The market generally expects that the launch of Bakkt will have a huge impact on the cryptocurrency industry. It is generally considered that Bakkt will provide some additional stability to the price of Bitcoin, and, consequently, to other cryptocurrencies as well (it is explained by the fact that most other cryptocurrencies’ prices change in correlation with the price of Bitcoin).
If you’re thinking of entering the crypto market before Bakkt becomes a reality, then you’d better hurry up because it is expected to be launched in Q3 2019. To purchase cryptocurrency you need to find an exchange for you. And if you want to do it, there’s a good place to go: cryptowisser.com and its list of cryptocurrency exchanges.
The Bakkt platform is said to apply certain cloud technology created by Microsoft. The aim is to use this technology to build an open but regulated ecosystem for cryptocurrencies. In this ecosystem, both individuals and large institutional investors will be able to store, buy and sell cryptocurrency assets.
As briefly mentioned above, the most interesting feature of Bakkt is that it will enable physically-settled Bitcoin futures contracts. Under these contracts, the holder/buyer will be entitled to get the relevant crypto assets on a defined date. The normal process that is widely applicable today looks quite different from that.
Today, if you purchase futures and you earn money after your contract expires you will get the value equivalent in the fiat currency of what you have earned. Now you can’t get the actual underlying asset. That’s the main difference. Sure, this “classic process” lets you withdraw your investments rather quickly just when you want to do it. However, it can also result in significant profit losses in the process of trading because of the exchange rates that are very volatile.
There is a number of reputable sponsors behind Bakkt. The list includes, but is not limited to, such prominent names as Microsoft, Starbucks, and the Boston Consulting Group (BCG). The sponsors are sharing their expertise and experience to make the project better.
Bakkt will offer two main types of contracts that you will have an opportunity to trade. These two types will be the daily futures contract and the monthly futures contract. These will both be listed for trading on IFUS. The dates that can be eligible for the Bakkt Bitcoin (USD) Daily Futures are Exchange Business Days officially recognized by banks headquartered in New York. The delivery of your Bitcoin will occur one day after the expiry date of the contract.
Bakkt Bitcoin (USD) Monthly Futures represent the second type of contracts. As you may have already guessed from its name, this contract will be settled once in a month (apparently every third Friday of the relevant month).
These contracts are both subject to standard regulation. The authority responsible for monitoring and enforcing these principles and regulations is the US Commodity Futures Trading Commission (CFTC). The entity that will deliver the Bitcoins that you have earned through the futures contracts is called the Bakkt Warehouse. It is still waiting for approval from the New York State Department of Financial Services.
Quite recently, on 22 July 2019, the Bakkt-project initiated UAT (User Acceptance Testing). In the UAT-phase, people from all over the world tested the platform. Clearing and settlement (delivery) during this phase has been and will continue to be executed by the Bakkt Warehouse. During the test phase, no “real” Bitcoins have been traded, it has only been on a demo-basis.
According to Investopedia, the public launch is expected to occur on 12 December 2019. This launch date might be delayed, however, due to the delays in receiving the necessary regulatory approvals and other issues. But it’s on its way at least!
The Bakkt platform will also offer block trading. In order to block trade, you need to be above a certain threshold, which is ten contracts. The block trading is possible for all cryptos that have monthly futures contracts.
The platform will offer the following spread combinations for daily contracts:
The spread convention includes both the buy order and the sell order. The buy order is a case when you buy the far month and sell the near month. The sell order presupposes that you put your cryptos up for sale in the far month and buy the near month.
As for spread costs, the company will add an exchange-calculated so-called “anchor price” at the nearest possible trade time. The difference between the value of the near month and the executed spread price will be applied to the far month.
Unlike P2P-trading, Bakkt will have set pre-defined trading hours. These will be from 8 pm Eastern Prevailing Time (EPT) to 6 pm, every day from Sunday to Friday. According to the time in London, it will be in a time period from 1 am to 11 pm. And in Singapore, it will be from 8 am to 6 am.
As a part of a welcome offer, Bakkt has announced that it will not charge any trading fees at all until 31 December 2019. However, from 1 January 2020, the following fees will be applied.
Several organizations and entities will be able to offer clearing and settlement services to those who are trading at the Bakkt platform. However, your services provider must be a Futures Commission Merchant (FCM), a member of the ICE Clear US (ICUS). Otherwise, you won’t be able to trade on the platform at all. Namely, these organizations will execute the actual daily and monthly futures.
There are a lot of people out there who are absolutely thrilled about the launch of the Bakkt platform. Others are more restrictive in their opinions on the significance of the Bakkt platform. Will the platform be able to increase safety, efficiency, and simplicity of crypto trading as the enthusiasts are hoping for? We’ll just have to wait and see.
For the end-users of the platform, the platform guarantees that the cryptocurrency assets will be sufficiently protected. Physical and virtual measures have been put in place to counter any malicious attacks. The funds will be kept in cold storage as an additional level of protection. Finally, if anything happens in spite of all these security measures, the funds will be protected by insurance. So even if your funds get stolen, your insurance will guarantee that you won’t lose any money.
Finally, one impact that the Bakkt platform may have. It is expected that it will become a tool that will help the cryptocurrency change its image from a speculative asset to a more effective medium of exchange. If everything goes well with the launch of the Bakkt platform, we can expect that more and more merchants will accept Bitcoin as well as other crypto assets as payment for their goods and services.
Bakkt is indeed a very exciting initiative from the ICE group. It may become the key to unlocking Bitcoin’s status as a more widely adapted medium of exchange in every corner of the world. Regulation, security and physical settlement are the main things that at least point in that direction. But, as always, we’ll have to wait and see.