Editor's Note: This article comes fromGu Yanxi, published with permission.
, published with permission.
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1. Compete with existing bitcoin exchanges
CFTC has indeed been very enlightened and leading in its treatment of Bitcoin. In 2017, it granted LedgerX a derivatives trading license and a clearing license for encrypted digital assets. This immediately prompted the CBOE and CME to start applying for a license to trade bitcoin futures. At the end of 2017, LedgerX launched a one-year option product based on Bitcoin. Both CBOE and CME have also launched bitcoin futures trading products respectively. But bitcoin spot trading has not been officially launched on federally compliant exchanges. The demand of institutional investors to trade Bitcoin spot is therefore not being met. One purpose of Bakkt is to solve this problem. CFTC approves one-day bitcoin futures offered by Bakkt with physical delivery of bitcoin. This product is actually a leveraged bitcoin spot trading product. Since the ICE Futures Exchange, which cooperates with Bakkt, is a federally compliant exchange, institutional investors can trade bitcoin spot on this exchange in compliance.
Bakkt belongs to ICE, one of the three largest exchange groups in the United States. Institutional traders of derivatives, especially those of commodity derivatives, will use various exchanges under ICE to carry out transactions. Due to the characteristics of this physically delivered, one-date bitcoin futures product provided by Bakkt, it actually provides institutional investors with an opportunity to trade bitcoin spot. Such a product is different from the bitcoin futures trading product offered by CME. Therefore, Bakkt has formed a differentiated competition with CME in terms of Bitcoin. In terms of products, Bakkt actually forms stronger competition with Coinbase and Kraken and other bitcoin spot exchanges in the world. Due to Bakkt's compliant features and its influence in the derivatives trading industry, the trading volume of Bitcoin on this exchange will rise rapidly. While this exchange is attracting incremental bitcoin trading volume, it will also attract some of the trading volume of other bitcoin trading venues.
2. The spot transaction price of Bitcoin on other exchanges will be subject to the transaction price of Bakkt
As a trading variety, Bitcoin should be the trading variety with the largest number of exchanges in the world, and these exchanges are still emerging. Due to the unregulated nature of these exchanges, fraud and market manipulation on these exchanges is inevitable. This cannot guarantee the authenticity of the price of bitcoin spot transactions. In terms of compliance and products, Bakkt provides a very good guarantee for the fairness of bitcoin spot transaction prices around the world. In terms of products, since it is a one-day futures product with physical delivery, traders must have a sufficient amount of physical bitcoins to support its transactions on the day. The one-day deadline and the characteristics of physical delivery have created very high requirements for traders. The ability of traders to manipulate market prices with cash is greatly reduced. Due to the compliance characteristics of this exchange, it must use various means to prevent manipulation in the market. The various technical means that ICE Trading Group has previously used for trading market monitoring can be used. This would further deter manipulation in the market. The transaction price of this product of Bakkt will have very strong credibility on a global scale. Any time bitcoin spot trading prices on other exchanges deviate from Bakkt's price, those trading prices are forced toward Bakkt's trading price. The fairness of the price of bitcoin spot transactions on a global scale is therefore better guaranteed.
3. The settlement price of Bakkt's daily delivery futures products will become an important basis for related businesses around the world
Due to the fairness of Bakkt's bitcoin one-day futures trading price, the daily settlement price it provides will be recognized within the market. Any business that requires the daily settlement price of Bitcoin will refer to Bakkt's settlement price. before that. CME's settlement price is a composite index provided by the Facility Group used. However, since the exchanges that provide bitcoin prices are not compliant exchanges, this settlement price still does not have enough credibility. The compliance nature of the Bakkt exchange and the characteristics of its products will convince the global financial business of its bitcoin settlement price.
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The volatility of bitcoin trading prices far exceeds that of any other financial product. On the one hand, it is because Bitcoin is still in the early stages of development and is traded on a 7×24 basis around the world, so its high volatility is also normal. In addition, the price of Bitcoin is easily manipulated. This is also a major reason for its high volatility.
Due to the compliance features of the Bakkt exchange, it can effectively prevent the manipulation of Bitcoin market prices in its trading venues. This reduces the volatility of bitcoin transaction prices. In addition, since the transaction price of Bitcoin in other trading venues will be subject to the transaction price of Bakkt, the volatility of Bitcoin prices around the world will be reduced.
5. It will further promote the acceptance of Bitcoin by other financial regulators around the world
In the U.S. trading market, before Bakkt, CBOE, CME and LedgerX already provided bitcoin derivatives transactions. The launch of Bakkt is a further recognition of Bitcoin transactions by US financial supervision. This will certainly affect the policies of regulators in other parts of the world towards Bitcoin. Bitcoin, as a trading variety, will be more widely accepted around the world. There will be more compliant exchanges to start trading Bitcoin.
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6. It will further promote the demand for compliant encrypted digital currency custody institutions
Bakkt is a digital asset custody exchange. Trading services for its bitcoin futures products are provided by its existing exchanges. The custody of digital currency transactions cannot be completed in existing securities custody institutions. It will be done separately in a specialized custodian like Bakkt. As more compliant bitcoin exchanges emerge, there will be more demand for such custodians. Therefore, technology-based companies that provide encrypted digital asset custody services will have more opportunities.
