“When things go wrong, those in power often promise to make it right. But do they?”
I remember reading these lines in a New York Times news article, and for an uncanny reason, it reminded me of Bakkt and all the institutional investors that promised good days for Bitcoin, the promise of ‘Making Bitcoin Great Again.’
When Bakkt was unveiled in August 2018, the entire cryptocurrency space was in an animated state, many debating on all the benefits the venture-backed by Intercontinental Exchange would bring to the table for the largest cryptocurrency. Interestingly, the timing of this news could not have been more perfect.
The entire cryptocurrency market was let down by the Securities and Exchanges Commission [SEC] repeatedly rejecting all the Bitcoin exchange-traded funds that were put forth for approval; the need for dependence on institutional investors saving Bitcoin’s price downward spiral was growing with each candle drop.
In short, 2018 was not much of a pro-Bitcoin year, and with ICE’s announcement, Bakkt immediately became the messiah of the cryptocurrency space with its collaboration with Boston Consulting Group, Starbucks, Microsoft, and others alike.
The product that elevated the enthusiasm of the cryptocurrency space with regard to Bakkt was its Bitcoin daily and monthly contract, with the x-factor here being that it would be physically-delivered. In a blog post, Kelly Loeffler had stated,
“[…] our new daily Bitcoin contract will not be traded on margin, use leverage, or serve to create a paper claim on a real asset. This supports market integrity and differentiates our effort from existing futures and crypto exchanges which allow for margin, leverage and cash settlement.”
The newfangled products were initially supposed to make their debut towards the end of 2018, with Bakkt outlining November as the testing month and December as the launch month. However, the timeline ended up being a pipedream as the platform had failed to receive any signal from the CFTC. The outcome leading to the next timeline for launch being drawn in January 2019. However, this too, was in vain as the regulatory approval continued to remain in the grey area.
The ship starts to sail:
After much to and fro with regulators, Bakkt announced that it was cleared to launch as the Commodities and Futures Trading Commission [CFTC] had finally agreed to wave the green flag, after a year of its unveiling. To add to this, in came the announcement that the New York State Department of Financial Services [DFS] had also jumped the bandwagon by approving Bakkt to be a Trust company.
This meant that customers, particularly institutional investors, could start participating in its daily and monthly futures contract market from September 23, with the warehousing service opening up in early-September. With this on-board, suddenly, everything started to seem to be going in tune with market participants wishes’; the price of Bitcoin had started to draw an upward line since the start of the month, and Bakkt was often quoted as one of the key reasons behind it, hinting that institutional investors had finally landed in the crypto-burrow.
“Illusion is needed to disguise the emptiness within” ~ Arthur Erickson
The mirage of Bakkt impact on Bitcoin’s price was broken on the very day the exchange launched. Much to investors dismay, the platform Bitcoin futures not only recorded numbers that were under par with the market’s expectations, but also the price of the cryptocurrency nosedived hours before its launch.
Recording a low of 71 BTC on its first day of launch, the reason behind its poor performance became one that was much-debated on in the market; institutions were still speculating on whether or not to have skin in the game, institutional investors preferred cash-settled Bitcoin futures instead of physical-settled future contract [owing to the spike in CME futures contract].
Nonetheless, one thing that remained steer clear, the much-awaited and anticipated launch of the year was an epic fail, and Bakkt had become the platform that had it all yet let everyone down.
The Hare and the Tortoise:
“We live in a culture full of hares; but the tortoise always wins” ~ Dave Ramsey
Even though Bakkt was ridiculed in the market for its appalling Bitcoin futures daily and monthly contract number, its monthly contract gradually started to pick up the game, while its daily futures contract had taken the back seat.
Since its launch, Bakkt’s Bitcoin Monthly Futures Contract volume has consequently broken its record, with the latest being December 18, 2019 record. The platform took to Twitter to point out its new level, stating,
“Yesterday we set a new volume record: 6,226 physically delivered Bakkt Bitcoin Futures contract at ICE Futures U.S”
Co-founder of Coingecko, Bobby Ong told AMBCrypto:
“Bakkt’s Futures had a slow start and took some time for Open Interest to grow but it is now popular.”
Interestingly, while the monthly futures contract volume continued on its way to the top, Bitcoin’s price, on the contrary, was set on its journey down south. While the king coin’s price did not dive on the days Bakkt recorded an all-time high, it, however, has recorded an uncanny slump a day before reaching its new high record.
“It is difficult to separate, at times, the myth from the truth” ~ Bob Kane
On one hand, Bakkt’s key highlight was that its contract “will not be traded on margin, use leverage, or serve to create a paper claim on a real asset.” On the other hand, it was soon brought to light that the futures contracts were not 100 percent bakkted.
In a Twitter thread, Alex Kruger, an economist and trader, zeroed in on whether or not Bakkt Bitcoin Futures were fully-backed, eventually drawing that, in reality, 37 percent of Bitcoin futures were backed by dollars and treasuries. He also called attention to the change in narrative, where the platform, in contrast to the initial statement, announced “plans for margined daily and monthly futures” in May 2019 and following the same path.
“‘Fully collateralized’ = 100% margin requirement. Note the margined daily futures have zero volume. It is all about the monthly futures, which are little different from CME futures. It’s thus ironic seeing bitcoiners giving Bakkt daily free advertising.”
“If opportunity doesn’t knock, build a door” ~ Milton Berle
Despite the slow, yet significant, growth in its monthly contract, Bakkt has no plans of sticking to the basics. The crypto-venture announced that it would be furthering its plans with one of its key collaborators, Starbucks, in order to make Bitcoin a day-to-day word in every coffee drinker’s life. Now, even its custodial service has been opened to all institutional investors, and not just its clients trading in Bitcoin futures.
Additionally, the platform also launched Bitcoin options contract for its Bitcoin monthly futures and even expanded to Singapore with its Bitcoin Monthly Futures contract settled in cash.
“Bakkt’s options launch is one month before CME’s own options platform. This is something that the traditional exchanges have been faster than crypto native exchanges.”
Unlike the futures market, options has always been marked as something more risky and volatile. The effect the options trading would have on the underlying commodity is something that would be revealed in due time. Nevertheless, this regulated option has piqued traders’ interest.
Bobby Ong said,
“Yes, options market is useful and is good for the development of the industry in the long term. In traditional markets, options take up 20% of the derivatives markets with the other 80% being Futures. We will probably see a similar trend for Bitcoin futures/options split too. Options will be useful in allowing institutional investors to further hedge or place their bets in this market.”
While Bakkt has progressed a lot more this year in comparison to the previous year, like getting the products approved and making it available for customers on its platform, its role in moving the Bitcoin market, in terms of price and adoption, does not seem to have hit the mark. Despite this, ICE’s crypto-venture still has a lot more untapped potential that could actually make a significant difference for the fate of the cryptocurrency in the long-run.