Bakkt announced two news products on Monday. The Bitcoin trading platform, backed by Intercontinental Exchange (ICE), will now offer Bitcoin options as well as cash-settled futures.
Bakkt first entered the market by launching physically-backed Bitcoin futures in September. In October, the company announced that it would start offering options tied to its Bitcoin futures. They were launched today along with cash-settled futures tied to Bakkt’s first contract, now trading in Singapore.
By starting with physically delivered Bitcoin monthly futures, the company says the new offerings help serve the trading and hedging needs of producers, consumers, traders and institutions.
According to the announcement,
“[Bakkt Bitcoin (USD) Cash Settled Futures] leverage the settlement price of the benchmark Bakkt Bitcoin (USD) Monthly Futures and provides an alternative for participants who are unable to trade our physically delivered contract.”
Bakkt Bitcoin (USD) Monthly Options are the first option on futures contracts for Bitcoin that are regulated by the Commodity Futures Trading Commission and are based on its benchmark Bitcoin (USD) Monthly Futures contract.
“Price discovery occurs completely within a federally regulated market and has no exposure to unregulated bitcoin spot markets. The Bakkt Bitcoin Options offer important hedging, trading and income generating opportunities to market participants around the world.”
While Bakkt is highlighting its regulated approach to the marketplace as a distinct advantage, the crypto community is raising some concerns, particularly the phrasing of the offering, given the name of the fifth-largest cryptocurrency on the market by market cap: Bitcoin Cash.
Bitcoin engineer Jameson Lopp, chief technology officer at Casa, suggests,
“You might want to re-think naming it ‘Bitcoin Cash Settled Futures’ since that could be interpreted several ways…”
Analyst Alex Krüger has also dissected Bakkt’s Bitcoin futures.
“Some believe Bakkt’s volume is fully backed by bitcoins. This is not even remotely the case. Almost nobody takes physical delivery. This is not a problem. It is normal for futures traders to not take delivery, in all assets. But Bakkt is no panacea.”
Bakkt futures are paper contracts offering physical delivery.
Futures are not backed by bitcoin. Traders trade on margin and need to have collateral (cash).
Prior to expiry, traders close/roll or go physical. Those holding a short into expiry must have bitcoin in the warehouse. pic.twitter.com/iEU4Mi8dmf
— Alex Krüger (@krugermacro) December 1, 2019
Since Bakkt’s introduction of cash-settled Bitcoin futures follows last week’s revelation that its physically-backed futures are only 63% backed by Bitcoin, with the remaining 37% comprised of cash or US Treasuries, critics are questioning whether Bakkt’s initial goal of distinguishing itself from derivatives giant CME, which offers fully cash-settled Bitcoin futures, and driving physical ownership of Bitcoin, theoretically buoying the price of the asset, are still key objectives.
According to Bakkt’s circular, its daily and monthly Bitcoin futures contracts are leveraged, contrary to initial highlighted statements made in August of 2018 by Bakkt’s former CEO Kelly Loeffler who recently stepped down to assume her new role as a US senator.
“Both contracts will be leveraged futures and will be margined by ICE Clear US (ICUS), including the collection of initial margin collateral and variation margin to manage risk. ICUS initial margin for the Bakkt Bitcoin Daily and Monthly Futures is expected to be approximately 37% for outright contracts.
As for Bakkt’s physically-settled Bitcoin futures, they’re still going strong. At the end of November the company reported,
“Two months after their debut, Bakkt Bitcoin Futures reached a record high of 4,443 contracts traded today – up over 60% from our last record-setting day.”