Bakkt has been “approved for launch”.
On Friday, the young subsidiary of the Intercontinental Exchange (ICE) announced that it has obtained a New York state license (trust charter) through the New York State Financial Services Authority (NYDFS). This removes the barrier for the company to begin offering highly anticipated physical settlement bitcoin futures contracts. The company plans to launch its products on September 23.
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Bakkt, first disclosed in August last year, has been seeking regulatory approval for the past year to begin offering this product. The company plans to offer two types of contracts: a daily contract and a monthly contract. Both will be settled at Bakkt Warehouse.
Bakkt CEO Kelly Loefler wrote in a blog on Friday:
“Our contract has been approved by the US Commodity and Futures Trading Commission (CFTC) through a self-certification process and user acceptance testing has begun.”
“Approved by NYDFS, Bakkt will establish the Bakkt Trust Company, a qualified custodian responsible for hosting Bitcoin for physical delivery contracts. This provides customers with unprecedented regulatory transparency and security while In a market that lacks institutional-level infrastructure services, it provides a compliant and globally available exchange."
“Bakkt is unique in that the settlement price of its Bitcoin futures contract does not depend on the non-compliant spot market, thus providing a transparent pricing mechanism for the benchmark price of Bitcoin. The importance of this difference can be reflected in reports of manipulation, as well as other concerns about anti-money laundering policies and weak compliance controls."
Monthly contract VS day contract
Loeffler said that Bakkt's daily contract will have a margin that will provide traders with an alternative to the non-compliant spot market.
“The purpose of a day contract is to provide a tool with margin. Therefore, when you trade on the Bakkt Futures Exchange, you trade on a (federal) compliant exchange.”
As for the monthly futures contract that Bakkt first announced in May, Loeffler said the contract added a “future price curve” to investors.
The monthly contract will allow investors to view the trend of Bitcoin within 12 months:
“Another important feature of the monthly contract is that it can provide snapshots at different times of the year, adding a spread trade (set trade)… For example, bitcoin will be halved next year, based on contract trading, you can View specific time periods for 2020."
Loeffler said that the core services that Bakkt will provide are "compliance with secure hosting" and institutional-scale transactions. Bakkt itself is not an exchange, but will use the infrastructure of its parent company.
Therefore, ICE will provide the actual exchange services, and Bakkt will provide the hosting services required for the physical delivery contract.
Competitors such as the cloud bitcoin contract market
Bakkt initially planned to approve its contract through the CFTC and announced that it would launch a Bitcoin contract in December 2018.
However, regulatory issues have forced Bakkt to postpone the launch date several times. Most notably, Bakkt announced in May 2019 that it had self-certified its futures contract through the CFTC, which was inconsistent with the previous plan to approve the product through the CFTC.
A month later, the company announced that it will begin user acceptance testing on July 22 – ensuring that customers and clearing houses can connect with Bakkt's infrastructure – and start working with potential customers.
Loeffler said on Friday, “Our customers and clearing members are already in the test environment.”
“We expect the user acceptance test to accelerate as the release date is finalized – September 23, and we will work with our customers to prepare for the official release.”
Although Bakkt may be the first company to launch a physical bitcoin contract, the company is also facing competition: derivatives supplier LedgerX and TD ameritrade-backed ErisX are also planning to offer similar contracts to investors. Seed CX and trueDigital are also working hard to launch similar products.