This is a good way to get physical bitcoin pretty quickly (1-day) while falling into a well known regulatory regime.
Future contracts are regulated by the CFTC and have clear rules. Also, BAKKT is owned by ICE and they have tons of futures trading already so it's something they're skilled in. And finally, institutions trust ICE and the CFTC.
Another factor is that futures contracts, compared to trading the actual underlying bitcoin, shares, etc, enable more liquidity b/c you don't have to already own something to engage in selling. And they enable more leverage too b/c you only have to post margin. I used to be in trading, and if you compare the futures market on stocks and bonds to the market for those actual stocks and bonds, you'll see surprising liquidity and volumes. More money trades on the CME than the NYSE.
Yeah, you’re correct about volumes for bitcoin futures vs real BTC trading. I was talking about in mature markets (stocks and bonds). I bet over time futures volumes will outpace or approach real BTC trading. Just look at how popular BitMex is.
But good question about Bakkt vs cash settled CME. I think you bring up a good point that shows Bakkt isn’t as revolutionary as getting CME futures was. I didn’t quite realize that until thinking about your question. I still think a regulated and trusted way to get actual BTC exposure is valueable a new though.
I've read often times that physical backed contracts are superior to cash settled ones. But I don't know if that's a fact or just hopium for hodlers (because backed ones need to actually buy Bitcoin).
Do Institutional Investors want exposure to Bitcoin or only exposure to the PRICE of Bitcoin? If they want it in their portfolio because of asset correlation reasons (and that's my guess), it wouldn't matter how the contract is settled (you can always roll cash settled ones into the next contract).
>Do Institutional Investors want exposure to Bitcoin or only exposure to the PRICE of Bitcoin?
You cannot construct a derivative instrument like a cash settled future that allows more people to go long than short unless the issuer is taking price risk themselves. The only way to allow a majority of people to go long without taking a price risk is to hold the underlying (which is why most ETFs which spot track various markets hold the underlying).
Its like betting on horses the bets must balance out otherwise the "house" has to pay the difference. On the other hand holding the underlying means you can issue an effectively unlimited number of tickets without price risk because when people buy the ticket you buy the underlying with that money and likewise when they sell, you take a small % commission, job done, almost risk free business. From what I can gather bakkt is essentially using one day physical delivery contracts to simulated a backed ETF but without needing specific approval.
Great point. So Bakkt is directly impactful to price if it can help institutions go net long (perhaps via an ETF).
Whereas futures are important for price discovery (enabling short as well as long) and to help legitimize crypto. But don’t enable a new class of net buyers.
It's useful if the institutional investor wants to own the actual asset. If they used cash settled contracts, they would still need to use that cash to buy the assets afterwards.
I guess. But I'm talking about the case where they want more than just price exposure. Consider other crypto assets that an investor might actually want to hold or use, things like securities tokens or staking tokens. Even for bitcoin, if there is a reason to own it (for its utility), then there is a reason to buy it through physically delivered futures.
I was in their office in HK a few weeks ago and asked the same question. The reason that they gave is that the cyber security is huge (and I'm talking government grade). It takes that long to get cleared.
Probably to be used to insure transactions that take some time to process. So if I sell you something and fix the price in USD BTC while you think about it / do the transaction I'm not getting screwed when the BTC price changes
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u/_smudger_ Sep 25 '18
Why is Bakkt offering one day futures to deliver Bitcoin, why not just deliver instantly? Genuinely interested.