Are you ready for the Bakkt exchange “Go Live” date? Circle September 23

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Updated: 13 September 2019

The 23rd of September is less than two weeks away. Are you prepared for how the Bitcoin market might react? Several analysts have been interpreting the latest moves of BTC in the market as due to the impending launch of the Bakkt crypto exchange. It is a subsidiary of ICE (the Intercontinental Exchange), the same people that are behind the New York Stock Exchange. We have been waiting over a year for this event, but the CFTC and the State of New York have given their “green lights” for action to start.

The “action” will involve futures contracts, which permit an investor to participate in the Bitcoin market without ever having to buy Bitcoins in the first place. Ownership of the security or digital asset is not a prerequisite, but, since the Bakkt futures will settle “in kind”, you could end up having to deliver or receive Bitcoins when your contract expires. Such is the nature of the futures market when they “physically settle”, as the process is called. If you are familiar with CME futures contracts, you would know that those settle in cash. “In Kind” settlements by necessity will require the buying and selling of actual BTC.

Details about how the Bakkt exchange will operate are slowly being made public. We have known for some time that the big draw, so to speak, will be for the institutional investor crowd. When managing large positions in the market, fund managers like to have hedging tools at their disposal to lock in gains or protect their downside. Futures contracts are the preferred tool for this purpose. The news today is that a deposit of $3,900 will ensure your ability to sit at the futures table. If you wish to speculate in this market, you will need to deposit a bit more, as a “speculative” requirement is set at $4,290 at this time.

John Todaro, director of research at TradeBlock, elaborated for the folks over at Coindesk the reason for such a necessity: “Speculative requirements are for those accounts that are speculating on the price move on bitcoin through futures contracts. The CFTC and other regulating agencies have rules in place to protect futures markets from excessive speculation, which can lead to deviant price fluctuations, volatility, etc.”

For further trading details, the Bakkt website provides more information than you might be accustomed to, but remember that the retail investor typically does not jump into the futures market, unless he or she is well trained, aware of the risks, and has practiced a trading strategy for days beforehand. For a flavor of what to expect, Coingape posted these details for its readers:

  • Daily Contracts: “The contracts are available for trading on each Exchange Business Day on which commercial banks are generally open for business in New York. The listing cycle is of up to 70 consecutive Eligible Contract Dates. The final settlement will be in the form of physical delivery at the Bakkt warehouse. The last Trading Day for a futures contract is 6:00 pm Eastern Prevailing Time on the Contract Date, while the last/only delivery day is the second Exchange Business Day after the Contract Date.
  • Monthly Contracts: “The listing cycle is of up to 12 consecutive contract months. The final settlement will be in the form of physical delivery at the Bakkt warehouse. The Last Trading Day of the futures contract is the second business day prior to the Delivery Day for the contract month and the Last/Only Delivery Day is the third Friday of the contract month.”

As for how markets might react over the weeks to come, the prevailing consensus is negative. Whatever “bump” which may have occurred when the launch date was announced, will surely disappear in the near term, if it still exists. There may be a lingering amount of support in anticipation of the “Go live” date, but as September 23 gets closer, we might see a reaction not unlike the monthly release of Non-Farm Payroll data. Expect a “sell-on-the-news” response, but once the trading starts, it is anyone’s guess as to what might happen next.

Alex Kruger, a noted crypto analyst, told NewsBTC that: “Some long/mid-term longs may be concerned about prices crashing. I can’t tell anyone what to do. Can say being concerned is a great way to make a mistake, as it often leads to an emotional exit if the price moves against. Need to have a plan. Reducing size helps in sticking to the plan.”

Yes, the Bakkt futures market will help with price discovery, but it still remains to be seen if the exchange gets top heavy with short orders or the other way around. The exchange price is supposed to be derived from a specially conceived algorithm, not a simple mathematical average of what is happening on a basket of other exchanges, such that the potential for price manipulation from foreign unregulated exchanges will be greatly diminished.

There are, however, long-term forward thinkers like Anthony Pompliano, the co-founder of Morgan Creek Digital Assets, who posited: “The more infrastructure that’s built around this, the more likely it is to never go away… we’re at a tipping point now where Bitcoin is here to stay. It’s going to end up being in every institutional investor’s portfolio.”