Digital assets platform Bakkt has finally received regulatory approval to start offering Bitcoin futures contract.
Bakkt’s CEO Kelly Loeffler recently published a post (https://medium.com/bakkt-blog/cleared-to-launch-8dfc3e6f9ed0) announcing that Bakkt is ‘cleared to launch‘ on September 23, after the firm obtained a charter from the New York State Department of Financial Services (NYDFS). The charter essentially grants Bakkt official permission to operate as a limited liability trust company. Bakkt can now begin offering physically-settled bitcoin futures contracts.
Bakkt has journeyed through a long and rocky road to get to this point. First announced back in August 2018, Bakkt’s official launch was postponed several times due to regulatory issues. But Bakkt’s moment of truth will soon be here. In less than a month, Bakkt can begin trading.
But just what does the company offer?
According to the official blurb on the website, Bakkt is a platform designed to support digital assets. Such a platform will enable both custodianship and transacting of these assets on an ecosystem ‘built on a foundation of secure technology to serve institutions, merchants and consumers.’
The NYDFS has already approved the creation of Bakkt Trust Company to provide custodianship services for physically-delivered futures. Speaking about this through her post, Loeffler said “With approval by the New York State Department of Financial Services to create Bakkt Trust Company, a qualified custodian, the Bakkt Warehouse will custody bitcoin for physically delivered futures. This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure.”
In the financial world, futures are agreements to buy or sell an asset (deposits, fiat currencies, cryptocurrencies, etc.) for a specific price, on a specific future date. These financial devices are commonly used by market traders across the world.
Bakkt, in partnership with Intercontinental Exchange (ICE), intends to offer two types of bitcoin futures: Daily and Monthly, which will enable customers to transact in a same-day market, or enable trading in the front month and across the forward pricing curve, respectively.
The company’s crucial game-changer is how it settles the contracts. Traditionally, futures contracts are settled in cash, which means that when the contracts expire, the parties involve either pay or receive price differences in fiat currency, be it US Dollars or other currencies. Cash settlements have little or no influence on the long-term demand for Bitcoin since the contracting parties are not really buying coins. They are only buying market value.
Bakkt’s physically-settled contracts mean that Bakkt must acquire large amounts of physical Bitcoin to honor the contracts, thus increasing the coin’s value. This is driven by basic economics: The fewer coins available on the free market, the higher their price.
Speaking about the contracts on her blog, Loeffler said that ‘our contracts have received the green light from the US Commodity Futures Trading Commission (CFTC) through the self-certification process. User acceptance testing has begun.’
One of the main stumbling blocks for the mainstream adoption of Bitcoin is the lack of regulatory approval in most countries. Without such legal framework, Bitcoin (or other cryptocurrencies, for that matter) become very difficult to own, trade, and profit from.
Bakkt has the backing the NYDFS and CTFT, two major financial oversight agencies in the US. This fact has immediate, and very positive ramifications for Bitcoin, and the crypto ecosystem in general. One, Bitcoin price shot up by almost $1k (around 10%) in the wake of Bakkt’s announcement, and two, a legally established framework for the trading of Bitcoin futures is now in effect. This bears great significance for the local US market, and also the wider crypto markets worldwide. Other countries may decide to take similar steps to provide a legally binding framework for cryptocurrencies.
Bakkt’s long road to launch has finally reached its destination. The company can now operate amidst legal certainty, which is a huge step for the wider acceptance and uptake of Bitcoin.
The announcement immediately drove the price of Bitcoin significantly upwards, and Bakkt’s digital assets platform offers a crypto payment solution accessible to anyone, which may very well turn Bakkt into the cornerstone for the Bitcoin market now, and for a long time to come.