Bakkt crypto futures exchange gathering steam, stepping up innovations

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Updated: 14 November 2019

As is often said, you cannot keep a good man down, or maybe a good futures exchange for that matter. For many, the Bakkt exchange has been down on the canvas, perhaps even out for the count in the minds of many onlookers, but this “Rocky” of the crypto-verse is not done by any means. Daily numbers remain small by comparison to the CME and other derivative exchanges, but they are rapidly increasing. The management team has also announced a flurry of new innovative additions to the service offering, as well.

Within the past few days and weeks, we have been told that:

  • Bakkt will soon be offering options, a much needed “tool”, which institutional investors claim they need for flexibility in the market and the ability to mitigate positional risk. The new product is expected to launch in early December, well ahead of CME’s planned launch of options in January. The CME is still awaiting regulatory approval, but no one foresees any problems for the established firm.
  • Bakkt opened its institution-grade custodial services on Monday for the general market to include any investor that wishes to store its Bitcoin within its fully regulated and secure Bakkt Warehouse, whether or not the investor is participating in their product offerings. According to CryptoSlate, Chief Operating Officer Adam White explained that his company made this change as a way of expanding “access to the global economy by building trust in and unlocking the value of digital assets.”
  • The shocker came two days later when White announced that Bakkt will soon, hopefully before the end of this year, be offering cash-settled futures contracts. Many observers have called the move “a remarkable about face” and “a pivot in the strategy that may seem at odds with the company’s founding vision”, especially if one remembers that the “Bakkt” brand was clever way of noting that the contracts would be “backed” up with settlement “in kind”. From a competitive perspective, however, it does seem to dovetail well with the decision to open custodial services to all comers, while also becoming the only shop that offers both “physically-settled” and “cash-settled” contracts under the same roof.

Having two different internal systems competing for patronage against one another could create competing pricing models, as well. Bakkt executives eliminated this issue by tying settlement prices back to the same index. CryptoSlate explains: ”Those concerned about the potential for a total deviation from the firm’s purported intention not to “create a paper claim on a real asset” may find comfort in one detail of the plan, however – the cash-settled offering will reportedly draw its price from Bakkt’s physically-settled BTC index.”

Is there an “arms race” developing between Bakkt and the CME? It appears that the gloves are now off and that Bakkt management curently feels confident enough to do what it must to gain market share in the Bitcoin futures and options space. After its rather abysmal start, the exchange has begun to ramp up volumes and record rates of increase on a daily basis, albeit that starting from a low base should show impressive gains.

In the last three trading days, Bakkt has recorded more than $10 million for each period, for a three-day record for the group of $42.5 million. It hit a another record of 1,622 BTC traded one day last week, while also crossing over the $1 million watermark for open interest. The CME Group was trading $133 million at the time with their cash-settled process, but who can say what might shift going forward.

When the CBoE discontinued its BTC futures program back in March, the CME surely won over a good bit of crossover volume. It will be interesting to see how this competitive battle plays out over the months to come, now that the CME has an active competitor once more.