The first fully compliant bitcoin settled futures are to start trading this September 23rd with two contracts to be exchange-traded on ICE Futures U.S. and cleared on ICE Clear US.
One day delivery contracts and monthly futures are finally to start being offered to primarily institutional investors after three months of testing and after acquiring all the necessary permissions.
“With the comprehensive regulatory review and approval of Bakkt Trust Company complete, we are pleased to serve as a qualified custodian of bitcoin for physically delivered futures,” Adam White, Chief Operating Officer at Bakkt, said.
The New York State Department of Financial Services (DFS) granted a charter under New York Banking Law to Bakkt Trust Company LLC.
That cleared the last hurdle in this world’s first offering that allows pension funds and other major investors to buy or sell bitcoin in a regulated manner with Bakkt responsible for custody and delivery if necessary.
“This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure,” Kelly Loeffler, Bakkt CEO, said.
After much discussion with CFTC on how Bakkt can be fully compliant with all the necessary regulations, they gave the go ahead dependent on a Trust Charter by the New York regulator as was required for the custody aspect.
Although granting such charter appears to be the default position by law, questions still remained on whether New York would do so considering the difficulty of securing crypto assets.
“The Bakkt Warehouse is built using the cyber and physical security protections that support the world’s most actively traded markets, including the NYSE,” Loeffler said.
They further have insurance on the assets, with Superintendent Linda Lacewell stating “this approval demonstrates New York’s competitiveness as a hub of innovation and leadership in emerging technologies.”
One More Step Towards the ETF
The infrastructure being built in the United States paves the way for what can be called the commodification of bitcoin.
As studies now almost unanimously declare bitcoin to be an uncorrelated unique asset class, interest in its potential use as a hedge or for diversification has been growing especially among companies and individuals that have so much money, they don’t know where to park it.
To meet that interest, bitcoin has slowly been moving towards mainstream finance, with Bakkt’s futures offering potentially creating a market for say Starbucks to accept bitcoin.
As notable as these physically settled futures are for being a first, a lot more notable is their potential effect in tilting the SEC commissioners’ stance of two pro, three against a bitcoin ETF.
SEC has stated they require sufficient trading volumes to occur on what they define as exchanges. ICE and CME meet this requirement, Coinbase doesn’t.
CME has been handling considerable volumes, but they’re fiat settled. How much volume ICE will attract remains to be seen, but interestingly they say the “settlement prices are distinct from unregulated spot prices.”
That’s because ICE itself will be a market with its own buyers and sellers. So it’s not quite a derivative. It’s spot buying and selling, but wrapped under futures so as to come under the jurisdiction of CFTC.
With all these markets developing, it will become harder and harder for SEC to turn down bitcoin ETF applications.
Once the ETF is finally approved, then you’ll be able to buy bitcoin on the world’s biggest stock market through your 501(k) or other investment portfolios.