Bakkt’s Bitcoin Futures Contracts Expected To Launch In July 2019

News and Analysis

Bitcoin futures exchange Bakkt has announced it is moving forward with its plans to launch physically-settled Bitcoin futures contracts. In an announcement on Monday, May 13, the Intercontinental Exchange (ICE)-backed company broke down the product, saying that it would be testing the products this summer.

In a blog post, Bakkt’s CEO Kelly Loeffler wrote that after closely cooperating with the U.S. Commodity Futures Trading Commission (CFTC), the company will be working with its customers over the next several weeks to prepare for user acceptance testing (UAT) for futures and custody, which is expected to start in July.

No specific launch date was announced though, neither did Kelly Loeffler explicitly say that Bakkt’s proposal to self-custody BTC and clear it through its parent company’s warehouse (Intercontinental Exchange’s ICE Clear US) had been approved.

“We expect to use UAT to ensure that customers have time to onboard and can test the trading and custody model we’ve built to their satisfaction,” she wrote.

As per announcement, Bakkt will list two different futures contracts: a daily settlement Bitcoin future, “which will enable customers to transact in a same-day market,” and a monthly futures contract, which will enable trading in the front month and across the forward pricing curve.

The firm says that price formation in these benchmark contracts will be supported by “proven tools” to detect abusive or disruptive trading practices, including wash trades. That means that the settlement prices on ICE Futures U.S. will be based on prices discovered in Bakkt’s physical delivery contracts without relying on unregulated cash markets.

The futures contracts will be margined by ICE Clear US, including the collection of initial margin collateral and variation margin to manage risk.

“This approach is consistent with capital-efficient risk management practices in global futures markets, ranging from oil and gold to interest rates and equity index futures,” says the company.

Bakkt will also place $35 million of its own funding into the clearinghouse risk waterfall, which, according to the firm, “puts our own ‘skin in the game’ and aligns our interests for market integrity and safety with market participants.”

For physical delivery and secure storage of Bitcoin, an integrated custody service will be fulfilled by Bakkt’s qualified custodian, subject to regulatory approval. Safekeeping will be supported by insurance, cybersecurity, and comprehensive compliance, including an anti-money-laundering program and blockchain analytics.

Kelly Loeffler added that Bakkt is also working with the New York State Department of Financial Services (NYDFS) to become a trust company and operate as a qualified custodian for digital assets, alongside the CFTC-regulated futures products.

As reported by ForkLog last month, LedgerX, a crypto derivatives provider, is planning to become the first U.S. company to offer physically settled Bitcoin futures contracts. Should they succeed in getting this license, then the firm will beat Bakkt to the first place.

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