While the future of digital assets is decentralization, right now, we’re nowhere near decentralization. Trusted counterparties are needed in this ecosystem to facilitate trading and payments of trustless, decentralized assets. While Coinbase, Kraken, Bitgo, Anchorage and a series of other VC-backed custody and Exchange solutions have grown tremendously, those with a fiduciary responsibility to clients care much more about a long history of trust than a short history of great technology. This is why Fidelity Digital Assets and Bakkt (owned by NYSE/ICE) are game-changers, as it allows traditional investors to finally gain comfort owning digital assets. While the futures product itself is not groundbreaking, Bakkt’s physically-settled futures offer a back-door way for large, risk-averse institutions to buy and custody bitcoin through an end-to-end regulated system approved by the CFTC and NYDFS, and backed by the sterling reputation of ICE. When compliance lawyers nod with approval, that’s good for Bitcoin and the rest of digital assets.
The real innovation is the daily physical settle. I am unaware of any daily settled futures contracts – in any asset class – at least in the regulated United States. It really is a revolutionary concept. All the benefits of futures – plus with the option of taking physical delivery at the end of the day. Or, vice versa, the ability to swap all of your bitcoin balances at the end of the day for cash. This will allow retailers to accept bitcoin without meaningful price risk. Every day their bitcoin balances can be converted back to USD – or whatever their national currency is. Bakkt could be the catalyst for general retail adoption.
There will also be monthly futures contracts. The monthly contracts will let any investor take a view on the future price of bitcoin up to 12 months out. So as certain market events are on the horizon, like bitcoin’s block reward halving projected for May 2020, you’ll be able to see how investors are betting. Below are details on the contracts.
The other major component of the launch is Bakkt’s approval by the New York State Department of Financial Services to create Bakkt Trust Company – the warehouse that serves as an institutional-grade custodian to custody bitcoin for physically-delivered futures. Up until this point, physically-settled bitcoin futures contracts have not existed. Last year, the Chicago Mercantile Exchange (CME) launched bitcoin futures contracts that were cash-settled. The physical delivery of bitcoin is a key differentiator. By taking this approach, investors will have more flexibility with their crypto holdings as opposed to with CME futures. Many investors will likely store their bitcoin within the Bakkt ecosystem using the regulated custody product. It’s designed for institutional market participants who require best-in-class security as a prerequisite for use. CEO Kelly Loeffler describes the custody product as its core service that will interface with Intercontinental Exchange’s institutional-scale trading infrastructure. The elegant beauty of bitcoin is that it trades “t-minus zero” – the trade is the settlement. To then have the hassle of rolling – say March to June – when bitcoin is already settled, is unnecessary.
The key problem so far…demand is very poor. 😟
Onwards & upwards!
Bly 🏁
📊Charts of the Day📊
⚠️Infographic⚠️
📜Random Interesting History 📜
Sept. 24, 1979:
CompuServe (CIS) offers one of the first online services to consumers; it will dominate among Internet service providers for consumers through the mid-1990s.
🎬 Cool Visual 🎬
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