Bakkt Starting User Acceptance Testing for Bitcoin Futures and Custody in July

Siamak Masnavi

On Monday (May 13), Kelly Loeffler, the CEO of Bakkt (which is owned by Intercontinental Exchange, the parent company of the New York Stock Exchange), announced some important news regarding the upcoming launch of its Bitcoin futures products.

As most of you probably know already, on 3 August 2018, Intercontinental Exchange (ICE), "a leading operator of global exchanges, clearing houses, data and listings services," announced that it was starting a new company called Bakkt that would be "working with a marquee group of organizations including BCG, Microsoft, Starbucks, and others, to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network."

ICE also said that as "an initial component of the Bakkt offering," its "U.S.-based futures exchange and clearing house" planned to "launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to CFTC review and approval." That launch has been delayed since Bakkt is still waiting the U.S. Commodity Futures Trading Commission's approval.

In a blog post published earlier today, Loeffler provided some important updates regarding the Bitcoin futures contracts that will be launched later this year on the Bakkt platform:

  • Bakkt's customers (many of whom "still waiting to get in") have helped with "the initial product offering."
  • Bitcoin futures will be listed "on a federally regulated futures exchange in the coming months."
  • Bakkt is working with its customers "over the next several weeks to prepare for user acceptance testing (UAT) for futures and custody," which are expected to start in July.

There will be two Bitcoin futures contracts:

  • "A daily settlement bitcoin future, which will enable customers to transact in a same-day market."
  • "A monthly bitcoin futures contract will enable trading in the front month and across the forward pricing curve."

The Bakkt CEO also mentioned 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 our 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."
  • "Bakkt will contribute $35 million into the clearinghouse risk waterfall."
  • "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."

This announcement by Bakkt has helped the Bitcoin price surge to even higher levels than seen during the past weekend. According to CryptoCompare, BTC is currently (15:20 UTC on May 13) trading at $7,827, up 12% in the past 24-hour period:

BTC - 24 Hour CC Chart - 13 May 2019.png

Featured Image Courtesy of Bakkt

Bitfinex Wants to Offer 100x Leverage For Crypto Derivatives Trading

Michael LaVere
  • Bitfinex will offer 100x leverage trading for cryptocurrency derivatives
  • According to the exchange's CTO, the hedging product is "ready for prime time"

Cryptocurrency exchange Bitfinex revealed it wants to offer derivatives products with up to 100x leverage for cryptocurrency traders. 

Hedging On Cryptocurrency Derivatives

Chief Technology Officer Paolo Ardoino told The Block on June 25 that the cryptocurrency exchange was ready to ship a 100x leverage product for certain users. According to the post, the project has been under development for some time and is “now ready for prime time.” 

The product was referenced in last month’s whitepaper published by Bitfinex for its $1 billion private token sale of LEO, stating

“Qualified Bitfinex account holders will be able to trade a new hedging product through a derivatives wallet.”

The whitepaper originally claimed that the new hedging mechanism would be released by the end of June, a timetable that fits with Ardoino’s “ready for prime time” statement. 

Ardoino confirmed that only “verified” customers will be allowed access to the product, given the risks involved in such highly leveraged trades. 

The CTO also took to Twitter to quell user concerns over Bitfinex’s existing 3.3x margin trading. Ardoino explained 100x leverage will be “optional,” and that their current leveraged trading products will be unaffected by the release. 

Big Risk, Big Reward

Bitfinex is looking to compete with rival exchange BitMEX, who already offers 100x leverage through its bitcoin perpetual swap contract. However, Bitfinex claims its product is designed as a legitimate hedging tool for clients, rather than a gambling mechanism. 

Max Boonen, CEO of trading firm B2C2, believes the product will only appeal to retail hedgers, as large investors will shy away from the risks involved in 100x trading. 

According to Boonen, 

“There’s nothing wrong inherently about 100x. But as a commercial hedger you want lower leverage margin. The larger investor wouldn’t want to take the risk of 100X, typically. They don’t want to go balls to the wall.”

The cryptocurrency derivatives market has been heating up. Last week bitcoin-bull Mike Novogratz’s Galaxy Digital announced plans to offer cryptocurrency options contracts.

Binance has also reportedly been exploring futures trading. On June 24, Binance CEO Changpeng Zhao tweeted the exchange had executed its first margin liquidation for a BTC short.