Bakkt recently announced that Bitcoin Futures are expected to be released on their federally regulated futures exchange by July.
Who is Bakkt and why is this important?
Bakkt is an institutional crypto trading platform led by the Intercontinental Exchange, AKA “ICE.”
There will be two lengths of futures contracts: Daily and Monthly. This means that traders will be able to “scalp” the short-term daily contracts for short-term positions of a few minutes to a few hours, and the longer-term contracts will typically be used to hedge/risk manage longer-term asset holdings. I would expect the daily contract to be very liquid, akin to the BitMEX “Perpetual” contract that is so popular, while the monthly contract would be less-liquid and not meant for trading with stops.
Another important difference will be the physical settlement of the contract, vs. the current cash settlement of CME/CBOE contracts. While most trades are not initiated with the intent of physical delivery, the monthly contract holder might very well use this settlement feature to hedge longer-term positions. This is akin to the classic story of Southwest Airlines hedging fuel prices through futures contracts, and took physical delivery of fuel which was settled at much lower prices than the market, because they had the foresight to hedge their fuel costs. With the recent runaway Bitcoin move, being able to secure the forward purchase of BTC at a much lower price (in case of a big rally) might be attractive to institutions, funds, and larger whale investors.
Lastly, and on a more subjective basis, this offering adds institutional credibility and risk management features that are just not available in today’s market, which might be the missing link between the Trillions of dollars of wealth seeking yield, and having those dollars invested into crypto.