{"id":19250,"date":"2019-09-30T16:50:38","date_gmt":"2019-09-30T16:50:38","guid":{"rendered":"http:\/\/ci027cfe6700002697"},"modified":"2019-09-30T16:50:38","modified_gmt":"2019-09-30T16:50:38","slug":"bakkt-to-the-wall-evaluating-bakkts-first-week-and-its-future-potential","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/markets\/bakkt-to-the-wall-evaluating-bakkts-first-week-and-its-future-potential","title":{"rendered":"Bakkt to the Wall? Evaluating Bakkt\u2019s First Week and Its Future Potential"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><figure><img decoding=\"async\" src=\"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/evaluating-bakkts-first-week-future-potential.jpg\" title=\"\"><\/figure>\n<p>After a year of waiting and stutter-stepping, Bakkt \u2014 perhaps the most anticipated Bitcoin marketplace innovation of 2019, which was supposedly going to finally unleash a deluge of institutional liquidity into Bitcoin\u2019s largely retail market \u2014 launched on September 23, 2019. And the results were overwhelmingly underwhelming.&nbsp;<\/p>\n<p>Bakkt, a futures market with daily and monthly contracts settled in bitcoin <a href=\"https:\/\/bitcoinmagazine.com\/articles\/bakkt-opens-bitcoin-futures-trading-clocks-29-contracts-in-first-12-hours\">launched<\/a> by the Intercontinental Exchange (ICE), traded 72 contracts in its first 24 hours. With bitcoin at just under $10,000, this added up to a disappointing $710,000. The <a href=\"https:\/\/bitcoinmagazine.com\/articles\/regulators-greenlight-bitcoin-futures\">CME and Cboe exchange\u2019s cash-settled bitcoin futures<\/a>, by comparison, traded $70 million and $100 million, respectively, when they launched in December 2017.&nbsp;<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"550\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">Cboe, CME, Bakkt volumes on the first day of trading. <a href=\"https:\/\/t.co\/vHoN9Mhr5l\">pic.twitter.com\/vHoN9Mhr5l<\/a><\/p>\n<p>&mdash; unfolded. (@cryptounfolded) <a href=\"https:\/\/twitter.com\/cryptounfolded\/status\/1176435413361266688?ref_src=twsrc%5Etfw\" target=\"_blank\" rel=\"noopener\">September 24, 2019<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>By the end of the week, Bakkt\u2019s monthly futures volume was still remarkably thin, with <a href=\"https:\/\/bitcoinist.com\/bakkt-bitcoin-btc-futures-launch-flops-only-usd-6-million-volume\/\" target=\"_blank\" rel=\"noopener\">just under $6 million in contracts<\/a> trading hands over its inaugural week. Unsurprisingly, this dammed up the swelling optimism that had anticipated the launch (and Twitter was immediately popping with <a href=\"https:\/\/twitter.com\/anondran\/status\/1176495980499234817\" target=\"_blank\" rel=\"noopener\">sarcastic<\/a> takes).<\/p>\n<p>Nevertheless, a common sentiment surfaced: It\u2019s simply too early to judge this apparently game-changing institutional on-ramp. That may be true, but what if the hype that inflated anticipation of Bakkt was also predicated on the pretense that institutions currently don\u2019t have sufficient regulated access to bitcoin, when in reality, they do?<\/p>\n<p>It\u2019s definitely too early to damn Bakkt as a flop, but factoring in other institutional bitcoin on-ramps, as well as the timing of Bakkt\u2019s launch, can inform our understanding of why it didn\u2019t match expectations.<\/p>\n<h2>Options on Options&nbsp;<\/h2>\n<p>\u201cFor institutions who took the time to understand Bitcoin, they already had numerous investment products available to them \u2014 from cash settled futures to investment trusts, to buying directly from OTC brokers or exchanges,\u201d Su Zhu, founder of emerging-markets-focused hedge fund manager <a href=\"https:\/\/www.threearrowscap.com\/\" target=\"_blank\" rel=\"noopener\">Three Arrows Capital<\/a>, told <em>Bitcoin Magazine<\/em>.&nbsp;<\/p>\n<p>The key, though, is not onboarding those who are already invested in bitcoin; it\u2019s attracting new hodlers. Bitcoin is now embedded in one of the world\u2019s largest stock exchanges, and this is the greatest blessing Bakkt bestows on the industry, Zhu believes.<\/p>\n<p>\u201cI think the main value proposition of Bakkt is adding the ICE brand name to the mix and serve as a key on-ramp as the bull market matures,\u201d Zhu said.<\/p>\n<p>So, amid sighs of discontentment following Bakkt\u2019s launch, <a href=\"https:\/\/twitter.com\/zhusu\/status\/1175968663125540864\" target=\"_blank\" rel=\"noopener\">Zhu is urging patience<\/a>. The platform\u2019s liquidity will first be \u201ca trickle, then a flood,\u201d he said on Twitter, adding that \u201cmost regulated futures platforms get low adoption on [day one]\u201d because brokers aren\u2019t prepared to clear the trades and cautious investors are waiting to see how the market reacts.<\/p>\n<p>Guy Hirsch, the U.S. managing director of <a href=\"https:\/\/www.etoro.com\/\" target=\"_blank\" rel=\"noopener\">eToro<\/a>, agreed with Su Zhu\u2019s sentiment that \u201cit\u2019s too early to tell\u201d if Bakkt will be a success or not, and he sees its tepid start as confirmation that some investors are still testing the waters on a very nascent asset class.<\/p>\n<p>\u201cI see the hesitance as a \u2018wait-and-see\u2019 approach more than a reaction to the structure of the offering. Crypto is still a relatively new asset class and institutions are still learning about the benefits that it offers,\u201d Hirsch told <em>Bitcoin Magazine. <\/em>\u201cThese sorts of offerings can often take a long time to play out and gain market share. Expect institutions to cautiously watch each other and ensure that the market infrastructure is in place before making any commitments.\u201d<\/p>\n<h2>Building Institutional Interest<\/h2>\n<p>Hirsch also spoke to the need for institutional investors to receive the proper go-ahead from officials before entering a market like bitcoin, adding that \u201cregulatory clearance is complicated and takes time.\u201d The regulatory murk can make it hard to know \u201cexactly what the bitcoin market will look like in future months and years.\u201d<\/p>\n<p>But in eToro\u2019s experience, at least, Hirsch said that \u201cthere\u2019s no doubt that [institutional] interest is there.\u201d In fact, he noted that \u201cit\u2019s deemed almost irresponsible to disregard the digital asset,\u201d considering it\u2019s the best performing asset class of the decade. This fact should drive sidelined investors into the game eventually, Hirsch believes, and Bakkt is just the beginning for enriching Bitcoin\u2019s exposure to Wall Street-caliber trading.<\/p>\n<p>\u201cAs institutions learn about the benefits of the technology, we expect the market to expand far beyond where it is today,\u201d he said. \u201cThe institutional products on the market today are only a fraction of what we\u2019ll see over the next decade.\u201d<\/p>\n<h2>\u201cAn Unfortunate Launch Date\u201d<\/h2>\n<p>As Hirsch pointed out, bitcoin is still a very young asset, so some institutions are going to need time to digest what it is before they decide to take a position or not.&nbsp;<\/p>\n<p>This is one answer for why Bakkt didn\u2019t attract as much trading volume as some may have hoped, along with the explanation that most institutional investors have a plethora of options elsewhere.<\/p>\n<p>Bakkt\u2019s timing offers another hint, according to Edward Moya, a senior partner at Oanda Group, a foreign exchange market and financial services company. When its predecessors in the Cboe and CME futures launched, bitcoin was at the peak of its most radical <a href=\"https:\/\/bitcoinmagazine.com\/price\">price rise<\/a> to date, and intrepid accredited investors were eager to capitalize on the imminent drop from its $19,000 all-time high.<\/p>\n<p>\u201cThe launch of CME\u2019s product had many investors salivating at the opportunity to short the highly elevated crypto space at the time,\u201d he said, adding that Bakkt had \u201can unfortunate launch date when the entire crypto space was looking vulnerable.\u201d&nbsp;<\/p>\n<p>Bitcoin\u2019s price took a dive following Bakkt\u2019s launch, falling roughly $2,000 over the course of the week (though given Bakkt\u2019s anemic trading volume, this is no doubt coincidental rather than causal).<\/p>\n<p>Bakkt\u2019s physically settled futures are a first-of-their-kind financial product as well, Moya said. Investors will need to get \u201cacclimated to this new exchange-backed bitcoin warehouse and futures contract,\u201d a reiteration of Su Zhu\u2019s belief that new commodities often present a substantive learning curve for old-guard institutions.&nbsp;<\/p>\n<p>\u201cPatience will be needed for the entire crypto space, but Bakkt bitcoin futures should be welcome news for accredited\/institutional investors seeking more price discovery and risk management,\u201d Moya concluded, while calling the offering \u201ca great opportunity \u2026 to attract mainstream attention.\u201d<\/p>\n<h2>\u201cBitcoin Is Growing Up\u201d<\/h2>\n<p>Travis Kling of Ikigai Digital Asset Fund took this optimism even further. He presaged that Bakkt\u2019s futures will be seen as a paradigm-defining moment for bitcoin\u2019s acceptance as a serious asset. Considering \u201c[s]ix years ago we had the Mt. Gox hack, three years ago we had the Bitfinex hack and two years ago we had the Coincheck hack,\u201d Kling noted, bitcoin\u2019s legitimacy as a financial product has come a long way.<\/p>\n<p>\u201cWhen the history books are written, the Bakkt launch will be portrayed as a step-change for the crypto ecosystem,\u201d Kling said. \u201cToday we have the assurances that come along with the safety and security of the [New York Stock Exchange] \u2026 A liquid, physically delivered futures curve is critically important to the maturation of Bitcoin. That curve should serve as the foundation on which to price bitcoin volatility, which should lead to a functional options market for Bitcoin. A functional Bitcoin options market allows for the partial transfer of risk from one party to another, which should lead to significant institutional adoption. Getting Bakkt up and running is one more step in a long line of steps towards institutionalization.\u201d<\/p>\n<h2>Bitcoin ETF Implications?<\/h2>\n<p>To no one\u2019s surprise, Bakkt aligns with Kling\u2019s optimism.&nbsp;<\/p>\n<p>Its CEO, Kelly Loeffler, formerly a CMO at ICE, wrote a <a href=\"https:\/\/medium.com\/bakkt-blog\/we-have-liftoff-an-important-milestone-for-the-industry-7b9843fb53eb\" target=\"_blank\" rel=\"noopener\">blog post<\/a> which hyped the product as \u201ca milestone for the industry.\u201d Proclaiming in the title that \u201cWe have liftoff\u201d \u2014 a nod to Bitcoin\u2019s indelible \u201cTo the moon!\u201d meme \u2014 she writes that the regulated bitcoin product \u201cwill accelerate the adoption of digital assets.\u201d&nbsp;<\/p>\n<p>Something like Bakkt dresses up bitcoin like any other regulated, trustworthy asset. For a little-understood commodity often defined by its frenetic price swings and a history of shady cyber activity, this is critical for courting Wall Street.<\/p>\n<p>\u201cAs institutions enter this emerging asset class, they will continue to look to secure infrastructure and the regulatory certainty that it provides. Importantly, these futures contracts now serve as benchmarks established by a trusted price discovery process upon which investors can rely,\u201d she wrote.<\/p>\n<p>Perhaps the best way to look at Bakkt, then, is not through the immediate benefits it provides, but the promise that is (hopefully) to come. A recent <em>Fortune <\/em>interview with Loeffler, for instance, observed that \u201cif Bakkt acquires gigantic volumes\u201d then this could mean that bitcoin purchasing on Bakkt \u201cmight pass the SEC\u2019s test for packaging Bitcoin into ETFs and mutual funds.\u201d&nbsp;<\/p>\n<p>Essentially, this institutional product could pave the way for a bitcoin ETF, that <a href=\"https:\/\/bitcoinmagazine.com\/articles\/bitcoin-etf-regulatory-withdrawal-sets-institution-on-ramp-back-once-again\">elusive unicorn<\/a> of Bitcoin\u2019s institutional adoption that the industry has been waiting on for so long.<\/p>\n<p>As to whether or not Bakkt will provide the rocket fuel its orchestrators and community observers are hoping for, we\u2019ll have to see if suit-and-tie Bitcoin cleans up well enough for the big players on Wall Street. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>What should we expect after week one?<\/p>\n","protected":false},"author":2566,"featured_media":19251,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[2022,1169,586,654,2130,182],"class_list":{"0":"post-19250","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-bakkt","9":"tag-bitcoin-futures","10":"tag-cboe","11":"tag-cme","12":"tag-ice","13":"tag-options"},"author_data":{"id":2566,"name":"Colin Harper","nicename":"colin-harper","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/MjEwMTYzMzc3Njg5ODYzNjQ2-96x96.webp"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/evaluating-bakkts-first-week-future-potential.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/19250","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2566"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=19250"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/19250\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/19251"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=19250"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=19250"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=19250"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}