Bakkt’s daily Bitcoin contracts will not be traded on margin or use leverage. They will simply be contracts for Bitcoin, “backed” by Bitcoin and settled in Bitcoin (as opposed to cash), in an effort to promote price discovery for Bitcoin.
That means although you’ll trade contracts that represent Bitcoin, the contracts will represent physical Bitcoin held by Bakkt (as opposed to using fiat dollars as a proxy while just tracking the price of Bitcoin).
This is good news for a few reasons.
- Bakkt is sort of a big deal. They will be one of the bigger mainstream players in the crypto space when they launch in November of 2018.
- Unlike CBOE and CFE futures (the other big mainstream players), the focus is 100% on Bitcoin. With CBOE and CFE you bet on Bitcoin’s price, but your contracts are settled in fiat dollars and no Bitcoin is held in reserve. You are ONLY betting on the price of Bitcoin with CBOE and CFE (either for speculation or as a hedge against your physical Bitcoin position elsewhere), with Bakkt you are dealing more directly with Bitcoin.
- By focusing on the market price settled in Bitcoin, and not on leveraged positions and/or positions settled in cash, it forces more players to participate in price discovery (finding a price through supply and demand over time) and takes away the incentive to move Bitcoin’s price up and down for the benefit of leveraged and/or cash settled positions.
In short, Bakkt is looking more and more like a Coinbase, which focuses on buying/selling at market price and custody, for the traditional markets and less like a Bitmex, which focuses on leverage (although to be fair to Bitmex, they settle their leveraged contracts in Bitcoin).
The more players (retail and institutional) involved in spot trading (buying and selling actual Bitcoin at market price) and holding Bitcoin, the less the market will in theory be dominated by speculators with little to no exposure to Bitcoin trying to make a quick buck by moving Bitcoin’s price.
Thus, not only is Bakkt a benefit for those looking for exposure to Bitcoin on the traditional stock market, it’s also potentially an asset to those who are long and Bitcoin and are interested in seeing a solid foundation built for the future.
- An evolving market The need for trusted price formation. Medium.com. <—- An official Bakkt post on Medium.