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Quantify Kicking Horse River (ID: gh_e9da2a6cbc62)
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Bakkt
Figure Nearly one-year yield of mainstream cryptocurrencies (data source: Finviz)
First, let’s sort out the latest developments of cryptocurrency futures exchanges such as Bakkt, LedgerX, ErisX, Seed CX, and Blade.
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In early August 2018, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), jointly launched Bakkt, an encrypted asset trading platform, with Microsoft, Starbucks, BCG and other companies. The company aims to create an open, seamless global network that allows investors, merchants and consumers to buy, sell, store and pay for digital assets in a simple, efficient and secure manner.
On August 16, Bakkt announced on its official Medium blog that it will launch custody and physical delivery of daily and monthly Bitcoin futures contracts on September 23 in cooperation with ICE futures US and ICE Clear US. Bakkt’s bitcoin futures will be traded on ICE futures US and settled on ICE Clear US.
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Image source: Bakkt official website (August 19, 2019)
Bakkt CEO Kelly Loeffler said in a statement that the contract has been approved by the U.S. Commodity Futures Trading Commission (CFTC) and user testing has begun. Approved by the New York State Financial Services Authority, Bakkt will set up a custodian - the Bakkt Trust Company (Bakkt Trust Company), and the Bakkt Warehouse will keep Bitcoin for physically delivered futures. This provides clients with regulatory transparency and security, while providing a regulated global exchange in a market lacking institutional-grade infrastructure services.
"We believe that a benchmark that can be referenced on a global scale will create confidence in the true price of Bitcoin." Kelly Loeffler told the media that this is an important step in building more trust. The fragmented nature of bitcoin trading means there is a lack of confidence in the price, and ICE's futures contract will allow traders to make judgments and express their views through a year-long price curve.
LedgerX
Some brokerage firms that have partnered with ICE for futures trading have agreed to handle these crypto contracts, Bakkt said. ICE said its ultimate goal is to create an ecosystem that encourages pension funds, endowments and other institutions to invest more in cryptocurrencies and makes it easier for consumers to buy products with cryptocurrencies.
Previously, Bakkt originally planned to list physically delivered bitcoin futures contracts in December last year, but the plan was repeatedly postponed because CFTC officials were skeptical about how customers' cryptocurrencies would be stored to avoid possible theft and manipulation. On July 22, Bakkt conducted a user acceptance test to ensure that customers, clearing members and suppliers were able to communicate effectively while trying out the contract.
Considering Bakkt's background and its advantages in custody and compliance, we expect that Bakkt will become a super channel for institutional investors to enter the cryptocurrency market.
At the end of July, CoinDesk reported that LedgerX, the first digital currency derivatives exchange regulated by the federal government in the United States, officially launched the first batch of spot-settled bitcoin futures contracts in the United States. But since then, LedgerX has clarified that currently its platform only has bitcoin spot and options transactions, and there are no bitcoin futures.
ErisX
LedgerX’s new products target not only institutional investors, but also individual investors. Anyone can trade contracts only through the KYC process. President Paul Chou said that individual investors can use their company’s newly launched Omni platform to trade futures, while institutional clients can trade futures like other LedgerX products.
Paul Chou also said that we have been engaged in this business for the past 6 years. Not only have we been seeking financial institutions to join, but we have also spent a lot of time contacting and educating regulators to let them understand the importance of this. For all of us, we never started offering this service only to hedge funds or institutional clients.”
Ledgerx was founded in 2014 but did not start offering physically settled bitcoin derivatives until 2017. However, its options and swaps products are initially aimed at institutional clients. It submitted the necessary license application to the U.S. Commodity Futures Trading Commission (CFTC) in November 2018, and revealed in April this year that it would offer bitcoin futures.
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ErisX said it would launch physically-settled futures contracts later this year, though the exact timing was not yet clear. ErisX CEO Thomas Chippas said that ErisX is different from other platforms that launch cryptocurrency futures products on the market at present. ErisX "uses the traditional DCM (transaction) and DCO (clearing) models to divide the transaction and settlement functions," which reflects the institutional investors. Demand for other asset portfolios (besides spot) is increasing, and this increased demand is helping drive the cryptocurrency market to a wider user base. "
Seed CX
The ErisX exchange was founded by former Citigroup executive Thomas Chippas and has received investment from many large Wall Street institutions. It is a legal exchange with multi-field licenses.
In May 2019, TDAmeritrade announced again that it would cooperate with the ErisX team to jointly develop and launch cryptocurrency trading products.
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Seed CX co-founder and CEO Edward Woodford said: "We are working closely with the US Commodity Futures Trading Commission (CFTC) and hope to be able to launch this product to the public within the next three months." Eight months of working closely with regulators is still awaiting final approval to enable SeedSEF to become a “self-certified” bitcoin swap product. As the "first" platform to test physically-settled bitcoin margin swaps, the new product will be a combination of margin and physical settlement, meaning traders will be allowed to use leveraged positions to buy or sell physically-delivered bitcoin in the future currency.
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Image source: Seed CX website (August 19, 2019)
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Blade
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According to CoinDesk, cryptocurrency derivatives exchange Blade recently received $4.3 million in seed round financing. Investors include Coinbase, SV Angel, A.Capital, Slow Ventures, Justin Kan and Adam D'Angelo. The exchange is scheduled to go live in a few weeks.
Blade Exchange mainly provides perpetual swap contract transactions based on cryptocurrencies, and has designed three new rule improvements, including: perpetual contracts will be drawn up using standard simple contracts; perpetual contracts will be traded using USDT stable currency Settlement and as margin; for cryptocurrency trading pairs, the leverage of the transaction can reach up to 150 times. Blade is expected to list 7 different trading pairs (involving BTC, Monero, Dogecoin, Zcash, Ripple, Binance Coin and USDT).
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It is reported that American investors will not be able to legally participate in transactions on the Blade exchange due to stricter regulation of cryptocurrencies by US government agencies. Blade itself is an offshore entity with a US subsidiary, and its main market is East Asia. Blade Exchange CEO Jeff Byun said that Blade Exchange hopes to build the "base layer of the risk hedging market" for cryptocurrencies.
Encrypted Assets Market Expansion Positive Trend Interpretation
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The launch of a Bitcoin physical delivery futures exchange will accelerate the maturation of the crypto asset market. The encrypted asset market is in the early stage of development, and is currently considered extremely immature. The policy uncertainty at the national and industry levels is relatively large, the obstacles faced by the regulatory level are huge, and fraud and hacker attacks also occur from time to time. The continuous entry of institutional investors will accelerate the penetration of BTC's mainstream consensus in encrypted communities such as ETH, LTC, BCH, and EOS, will accelerate the pace of policy formulation and regulatory coordination, and will accelerate the maturity of the encrypted asset market.
