On Monday, the Wall Street Journal published that the answer to the ICE's bitcoin futures platform Bakkt, which was delivered two weeks after the launch, was disappointing. The highest value cryptocurrency bitcoin also fell nearly 20% in the past two weeks.
According to the report, the trading volume of Bakkt's bitcoin futures contract is terrible. Only 49 contracts were traded on Friday. In the previous nine trading days, a total of 865 contracts changed hands.
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Matt Hougan, head of research at Bitwise Asset Management, said it is unrealistic to think that Bakkt will lead to a large influx of buyers. He said, "Things don't happen suddenly. They take days, weeks, months, and sometimes years to brew."
Bakkt was originally scheduled to go live in November last year, but the launch was repeatedly postponed because ICE was difficult to obtain regulatory approval from the US Commodity Futures Trading Commission. Bakkt's investors include ICE, Microsoft's venture capital division and Boston Consulting. Bakkt said more and more traders and clearing companies are using the platform.
For most of the past two years, Bitcoin supporters have placed the future of cryptocurrencies on Wall Street, especially from institutional investors who want to seek alternative investments. But Bitcoin has been tied to its own risks, including price volatility, market manipulation, fraud and theft.
The ensuing problem is that bitcoin is different from any other asset class and cannot be valued using standard methods.
Bank of New York Mellon launched a fund in Europe in February to provide investors with access to the basic technology of Bitcoin, the blockchain. The fund, called BNY Mellon Digital Assets, invests in companies related to the blockchain and manages approximately $10 million in assets. According to Erik Swords, senior researcher at BNY, it is built in such a way that it can also purchase cryptocurrencies directly, but so far no cryptocurrency has actually been purchased.
Swords said that it is impossible to use standard indicators to value bitcoin, which makes it difficult for portfolio managers to prove that it is reasonable to invest the client's funds, and if the investment has a loss, it is more difficult to justify the investment.
For these reasons, Bitcoin buyers are mostly individual investors. According to Blockchain.com, the average daily number of transactions in the Bitcoin blockchain was 345,000 over the past six months, up from 316,000 last year. However, these activities do not represent the entry of “external” funds.
The institutional market for Bitcoin is still small. CME's Bitcoin futures contract, launched in December 2017, created a record volume this summer, in line with the rise in bitcoin prices. But it is still a small market. Last Friday, the volume of CME Bitcoin contracts was about 2,000 contracts, but it was still negligible compared to mainstream futures trading products.
There are also exchange-traded funds (ETFs). The US Securities and Exchange Commission (SEC) is expected to rule on two applications based on the Bitcoin-based ETF later this month. The ETF has now been promoted as a way for investors to invest in Bitcoin without the complexity of issues such as hosting. But so far, the SEC has rejected or postponed all applications on the grounds of market opacity.
However, Hougan believes that even if the SEC approves these bitcoin ETFs, it will be as slow as Bakkt at the start. He said, "This is not a starting gun that will make everyone rush out of the starting line."
Image source: pixabay
By Xiu MU
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