Bakkt Bitcoin futures details [Full Guide]
This article consists of Bakkt bitcoin futures details, What is Bakkt, When is Bakkt going live and how it will impact the bitcoin or crypto market. Right now the crypto market is very down from the last bull run of 2017 as google searches for “bitcoin” went down by 93%. Right now many people are not very positive towards crypto and their interest is also decreasing.
But now institutions are showing interest in this field like Fidelity launched its platform and Bitcoin ETF is expected to get approval by SEC. Many big players like CBOE, ICE, Fidelity are showing interest. So it means that the crypto market is getting a good attraction. Volatility in the crypto market has also been decreased to some extent. But recently ICE (Intercontinental Exchange) parent company of NYSE announced that they will be launching a bitcoin futures trading option for institutions. Till now they have partnered with Microsoft and Starbucks. This can create a new positive temper and enthusiasm for the current bear crypto market. So lets now discuss this in detail.
***Disclaimer- This article is only meant for the educational purpose, not for financial advice.
What is Bakkt
Bakkt is a company owned by the ICE parent company of NYSE. They will launch the physically backed bitcoin futures for institutions. Also, they will add more trading products and options later but currently, they are starting with bitcoin futures. Till now no one is providing physically backed bitcoin futures so they are the first to do this. Also, they will build a platform for institutions to buy, sell, store digital assets securely. They have partnered with Starbucks to bring bitcoin into mainstream payments in the initial phase. Their bitcoin futures is very much different from the regular bitcoin futures like by CME. The very big problem of bringing bitcoin to mainstream is the price volatility so Bakkt is trying to solve it for companies by providing physically backed bitcoin futures on a daily basis.
Bitcoin futures trading by Bakkt
In the futures contract, a commodity is transacted at a predetermined price in order to reduce the price volatility also called hedging. Let’s take an example to understand bitcoin futures trading. Suppose a big company like Starbucks has agreed to accept bitcoins as payments. Now they have done a business of around 50k bitcoins in a single day. In that single day, btc prices fell below by 20% so it will be problematic for them. Price volatility of bitcoin is the main reason for bitcoin not coming into the mainstream as businesses prefer stability. So, Bakkt (by ICE) is trying to solve this problem by providing bitcoin futures contract to large businesses.
Suppose Starbucks now bought a futures contract for a day which will fix the price of btc for Starbucks. Then after the sales suppose prices fell below but now Starbucks has the privilege to take a short position and liquidate the contract at that agreed price. It is just like hedging practiced by farmers and food processors to reduce risk. This step will inspire more businesses to come into bitcoin and make it mainstream.
Bitcoin futures trading by Bakkt is completely different from what is launched by CME and CBOE last year. The biggest difference is that Bakkt futures contract is physically settled and the other ones are settled by cash. In Bakkt they will physically store bitcoins for every corresponding contract. It is not like CME or CBOE which is cash settled and used by speculators to bet on price. Sometimes due to this, big manipulators manipulate the market for their price speculation as it is not physically settled contract. So physically settled futures contract can decrease this market manipulation to some extent and further decreasing volatility.
When is Bakkt going live
ICE officially announced that Bakkt will go live in the second week of December 2018 but now it has been scheduled for release on 24th January 2019.
Objective of Bakkt
Also, one important point we should know about Bakkt is its objective. Till now the objective of bitcoin futures trading is for making profits on price guessing. But in Bakkt the objective will be providing hedging option to businesses. It will be physically bitcoin backed bitcoin futures so there will be less price manipulation. The objective of bakkt is not price guessing but providing hedging tool in bitcoin for business to decrease their risk.
How Bakkt will impact bitcoin
Now the most important part you want to know that how bakkt will impact bitcoin or crypto market. In simple words, Bakkt will encourage bitcoin in mainstream payments. In other words, Bakkt will give bitcoin new sustainable growth. Many people think that after Bakkt bitcoin price will spike because of bulk buying of bitcoin. In reality, we will not see a huge spike in price but also it will be beneficial for the crypto market, let me elaborate it deeply. We will not see a huge spike because Bakkt will buy btc through OTC( over the counter) or by mining firms not by exchanges.
It will be beneficial for btc because it enables and increases physical bitcoin transaction which will give a btc sustainable growth which will be according to the real world usage of bitcoin. price will not fluctuate on manipulation then btc will be less for profit booking machine rather a transaction tool. So the price of btc will be according to the practical usage, actual demand, and supply of it. The last year 2017 we saw a huge spike in btc from 5000 $ to 19000 $ which is not a sustainable growth for anything. It was just a anticipation, manipulation in people. There was no practical usage of btc going on a huge scale for which btc is made.
Conclusion of Bakkt
So the conclusion is Bakkt will encourage the practical and actual usage of bitcoin between businesses and people which will create demand and supply and give bitcoin a sustainable and steady growth (not spike and less volatile). Due to Bakkt futures trading, there will be actual buying and selling of bitcoin not like the present scenario in btc futures trading where people just speculate on btc price and treat btc like a profit booking machine. Remember bitcoin is made for real-world usage not for making money with it. Also, this will make our crypto market less volatile, more mature. Bakkt will help in achieving the real objective of bitcoin.
Steady growth vs hyped growth
For steady growth, it should be slow, sustainable and should be fulfilling its true objectives. same goes with the stock market that a company’s stock should be performing according to its objectives, not by some manipulations. If a company stock is fulfilling its objectives and it has some strong goals in which the company is moving then it will automatically get the organic and steady growth which is the best. It is worth mentioning that J curve growth or spiked growth is also good but the condition is that the product should be delivering its true objectives, not on hype.
So, Bakkt can help bitcoin in achieving organic and steady growth by helping in its true objectives. Till now in the case of bitcoin, we have seen more hyped growth which has given bitcoin bad results and criticism for btc. Many people usually criticize bitcoin because of hyped growth I have written an article on this read here. So in the long run and for real success of bitcoin Bakkt will surely play a crucial role.
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