Bitcoin options are coming, will Bakkt help or help?

Author: Sister shallot

Source: Shallot blockchain

On October 24th, Bakkt announced that it will launch the world's first option contract based on Bitcoin futures on December 9 this year. Bakkt said on Twitter:

“The Bakkt Bitcoin options contract will be based on the benchmark Bakkt monthly Bitcoin futures contract and represent another important step in developing this asset class for institutional investors.”

• Staking Economics: Avoiding the centralization of network power, how does “reverse incentives” work?
• Twitter CEO: Twitter will never join Facebook's Libra project
• Viewpoint | Is the exchange the only way out for the project?

Unlike the spot options that are dominated by other exchanges such as the currency security, Bakkt is launching Options on Futures, which deals with the trading power of futures contracts, rather than the trading power of the spot.

A month after the launch of Bitcoin physical delivery bitcoin futures, Bakkt has once again stepped up its pace in the layout of the Bitcoin derivatives market, preempting the opportunities in the options market. Earlier reports said that several sources familiar with the Intercontinental Exchange product roadmap revealed that Bakkt hopes to enter the Bitcoin options business, which hopes to beat the rival Chicago Mercantile Exchange (CME).

Bakkt is the bitcoin futures platform of the Intercontinental Exchange (ICE), which has been certified by the US Commodity Futures Trading Commission (CFTC) and is the “first regulated” option contract for anchoring bitcoin futures. Bakkt will also gain a broad audience and high liquidity from the parent company. In addition, Bakkt will use ICE option analysis to provide option evaluations to help users analyze and control risk.

Bakkt uses the European option model based on the Bakkt monthly Bitcoin futures contract, with a cash + physical dual settlement. Kelly said that starting in January 2020, each option contract is priced at $1.25 (1 contract = 1 bitcoin).

Why launch Bitcoin options? What is it?

With only a decade of birth, Bitcoin has gone through decades of financial development in a very short period of time, and its financial trading market has been undergoing rapid fission. From over-the-counter trading to on- and off-market trading, to the boom in the Bitcoin futures contract market, bitcoin is now welcoming a full-scale outbreak of the derivatives market.

This year, the entry of Bakkt, LedgerX, ErisX and other exchanges has brought a new competitive landscape to the Bitcoin contract market. In addition, derivatives providers led by CME, Bakkt and LedgerX are still exploring the huge unknown potential of the Bitcoin market. The collective turned its attention to the bitcoin options market.

As early as November 2017, LedgerX launched its first long-term trading of Bitcoin Futures Options (LEAPS), and according to Bloomberg, CME will launch Bitcoin options in the first quarter of 2020, currently awaiting regulatory Review.

Moreover, the current cryptocurrency spot market is gradually becoming saturated, and it is not surprising that exchanges have collectively poured into the derivatives market. CoinGecko co-founder Bobby Ong said:

The spot market is also highly competitive and is filled with participants in many differentiated products. Another reason many exchanges are paying attention to the derivatives market is that the growth of new retail traders to the spot market is not much. In order to maintain revenue/profit in a declining market, exchanges are forced to increase average revenue per user (ARPU) and can do so by offering margin products and derivatives.

As the trading volume of Bakkt Bitcoin futures contracts stabilized and went on track, the derivatives market became more and more worth looking forward to, so Bakkt quickly acted.

So what exactly is Bitcoin options? What is the difference with futures?

Shallot previous article "Bitcoin options, the next battlefield of the exchange? As mentioned in the article, options and futures are derivatives contracts, which give the holder the right to buy or sell an asset at a fixed price at any given date or any time before that date; futures contracts are relative A time-based trading method for spot.

Futures trading is still a certain kind of object (can be goods / goods, such as gold, crude oil, agricultural products, can also be financial instruments, but also bitcoin), but not immediately trading, but trading in the future agreed time; Options trading is a right to buy and sell, but investors do not need to buy or sell real bitcoin.

SwissBorg Wealth Management generalizes Bitcoin options, just as you think Bitcoin prices will rise in the future and buy Bitcoin (or think that prices will fall and sell Bitcoin), Bitcoin options still offer price changes Arbitrage opportunities. But the option does not have to actually buy (or sell) bitcoin, but instead provides the investor with the "right" to buy (or sell) bitcoin at a pre-defined price in the future.

In addition, the main benefits of Bitcoin options are similar to futures, such as:

1. Bringing a large amount of emerging funds and flows to the cryptocurrency market to provide more liquidity for the bitcoin trading market.

2. Providing a federally regulated and compliant system for institutional and retail investors to purchase Bitcoin, providing institutional investors with a stable and secure access to the cryptocurrency market.

3. Bakkt, CME, and LedgerX are all trusted entities. They have high credit or traditional authoritative financial endorsements and hold relevant licenses, which are highly secure and legal.

But will Bakkt "kill" the bitcoin bull market?

There is a terrible guess at the moment that Bakkt, which is considered a "bull engine", may "kill" the bull market, and CME and COBE are the precedents of Bakkt.

On December 11, 2017, it was the enthusiasm of the global bitcoin market. By this, Dongfeng CBOE launched the world's first bitcoin futures contract (XBT), and Bitcoin officially entered the public view with futures. Shortly thereafter, the Chicago Mercantile Exchange (CME) also launched the Bitcoin Futures Contract (BTC) on December 18 of the same year.

The cryptocurrency market began to embrace institutional investors and large funds. CBOE and CME provided a regulatory trading environment for the digital currency market and was also considered a watershed for the legality of cryptocurrencies.

However, CBOE and CME were also charged with “bull killer”. On the day when CBOE launched bitcoin futures, bitcoin prices rose again to around $16,700. On December 17, the day before CME launched Bitcoin futures, Bitcoin rose to a record high of nearly $20,000. Then it quickly ushered in a plunge and a bear market in 2018. At the beginning of 2018, bitcoin fell to a minimum of about 3,000 US dollars, plunging more than 80%.

The latest article on the scallions, "The US government is the chief culprit in the 2018 bitcoin plunging? According to reports, Christopher Giancarlo, former chairman of the CFTC, said in an interview with CoinDesk:

One lesser-known story of the past few years is that CFTC, the Treasury, the SEC, and the then (National Economic Council) director Gary Cohn believe that the launch of Bitcoin futures will break the bitcoin bubble. (And) it worked.

Giancarlo cited a study by the San Francisco Federal Reserve that argues that the launch of Bitcoin futures has curbed the market dominated by optimists.

Without a short position, there is no pessimist in the market. Bitcoin futures provide a convenient short-selling tool for the market, which has curbed investor optimism. Giancarlo said that if you don't have such a derivative, then you have a believer, and this is a market for believers.

Similarly, the Bakkt bitcoin physical delivery bitcoin futures, considered to be the "biggest profit in 2019" "bull engine", was officially launched a month ago (September 23), but it did not bring "a bullish atmosphere". Bitcoin does not rise and fall.

The Scallion APP market shows that on the day of the launch of Bakkt Bitcoin Futures on September 23, Bitcoin fell below $10,000. After that, Bitcoin could not stop falling for the next two days and began to plunge, dropping from the lowest near 10,000 USD to 7702. The dollar fell by more than 20% on the 3rd. In the following month, Bitcoin has been oscillating around $8,000.

In the upcoming December, Bakkt will launch Bitcoin options, which will further improve the short-selling tools in the market. Will this contribute to the decline of Bitcoin?

We will continue to update Blocking; if you have any questions or suggestions, please contact us!