For nearly a year now, crypto investors the world over have been eagerly waiting for Bakkt with breathless anticipation. First announced late in 2018, the Intercontinental Exchange-backed Bitcoin platform was billed by optimists as the catalyst that would kickstart BTC’s next price rally to fresh all-time highs.
After countless regulatory setbacks and a long development procedure that ran longer than expected, Bakkt is finally ready to launch. In fact, it has technically already gone live, having allowed its clients to deposit Bitcoin into its Warehouse starting on September the 6th. But on September 23rd, the real floodgates will open, as Bakkt will then launch its Bitcoin futures contracts, some of the first high-profile contracts in the industry to be tied to physical BTC.
Why Bakkt Will Help Bitcoin
Analysts say that this physical aspect of the Bakkt contracts could have a revolutionary effect on the cryptocurrency markets, potentially allowing for much more efficient price discovery, and, with that, a chance for greater growth. PlanB, a quantitative analyst that tumbled down the cryptocurrency rabbit hole, recently explained his thoughts on the matter during a recent episode of “The Investor’s Podcast” with Preston Pysh and Stig Brodersen, two popular podcasters and fans of Bitcoin.
Firstly, PlanB said that derivatives, which is an investment vehicle class that futures is a part of, open markets up to institutional investors, as they provide liquidity. Derivatives, especially futures, give investors the opportunity to sell their assets if needed, which is something often not available in Bitcoin, where large trades either cause large slippage in order books or take a while to complete due to over-the-counter logistical concerns. Bakkt being heavily backed by one of the world’s most influential exchange providers and institutions is likely only going to help with that.
That’s not all. Bakkt is extremely important to Bitcoin also because the BTC futures markets in operation right now are primarily “cash settled”, meaning that no physical BTC is involved in the resolution of futures contracts, meaning that someone could sell more BTC than they actually have, or even more coins than there are in circulation. A good example of this is a tweet from the CME, who has the leading Bitcoin futures market right now, saying that it has processed 10 mil BTC worth of trades since the launch of its product in December 2017. But throughout that time, not a single physical Bitcoin was worked into the CME’s contracts.
Bakkt mandates sellers to actually obtain the BTC they want to sell; Bakkt gives the buyers the chance to redeem their contracts for actual coins. According to PlanB, this new dynamic, which he claims “changes the whole game”, in the market may make investors scared to short Bitcoin, as it creates a certain market effect that only leans into BTC’s digitally scarce nature.