Bakkt to the Future or Bakkt with Futures?
The institutional cryptocurrency market was buoyed this week by the announcement from the Intercontinental Exchange’s [ICE] digital assets project, Bakkt. Arguably the most anticipated introduction of 2019, Bitcoin Futures have been a long time coming. Now, they are here.
Bakkt announced on July 22 that they have begun testing their latest crypto-derivatives product, both Bitcoin daily and monthly futures, with global participants. Futures contracts will eventually be listed and traded on ICE Future US and ICE Clear US.
Even though this is a beta launch, it does set a precedent in the Bitcoin market, especially because this product is physically delivered, unlike the CME’s cash-settled XBT contract. This organized addition to the growing Bitcoin Futures market signals a shift in the way cryptocurrencies will be delivered and traded in the future.
Meltem Demirors, the Chief Strategy Officer at CoinShares and fresh off her congressional testimony on Facebook’s Libra, weighed in on the implications Bakkt Bitcoin Futures will have on the overarching market. She stated that this introduction would “fundamentally change” the very nature of the market.
Congrats to @Bakkt on the beta launch of their physically settled bitcoin futures contract! The market for bitcoin is changing, and quickly. futures, derivatives, and synthetics will fundamentally change the nature of the bitcoin market. see below what happened to gold ???? pic.twitter.com/PI8KKadjFY
— Meltem Demirors (@Melt_Dem) July 22, 2019
Demirors added that “meshing” Bitcoin to the traditional financial market will make for a “wild ride.”
Likening the Futures versus Physical Bitcoin products to the Gold debate, and how the introduction of the former caused a paradigm shift, she substantiated her claim. According to the attached CoinShares chart which detailed the growth of Gold as an asset class following the introduction of derivatives for the commodity in 1974, the actual rise was only felt this century.
As trading infrastructure began to fortify, so did Gold futures, skyrocketing from 2015. Now, physical Gold products are but a fraction of the entire asset class, with Demirors veering towards a similar fate for Bitcoin.
Given the interest Bitcoin is now facing, this ‘growth’ in the digital asset class will come more from the formal institutional side, rather than a retail front. Wall Street already has their crypto-tails up, a crypto-push from a major player like ICE only increases the incentive to trade BTC Futures, just like Gold.
The mirroring effect of Bitcoin Futures versus Gold Futures can be equated. However, a few nuances need to observed.
According to a piece that detailed the possibilities of the rise in Bitcoin following CME’s and CBOE’s Bitcoin Futures introduction, the author of ‘Minds And Markets’ stated that the Bitcoin trend will not “follow the gold trend exactly.”
The author detailed three divergences between the BTC market of today [or rather, 2017] to the 1974 Gold market. For starters, the information flow today is much faster, and the market is affected by every bit of information. Secondly, in the BTC world, hodling is the central investing strategy. Finally, Bitcoin has far more competitors, internally and externally, competitors gold never had.
With Gold and Bitcoin reigniting their tussle, the question remains. Will Bitcoin go Bakkt to its previous highs and shatter the ATH of yesteryear and will the BTC market be Bakkt by Futures, as the Gold market is today?