Anyone following the hype surrounding Bakkt is probably trying to figure out exactly what, “physically delivered Bitcoin futures contracts” are. The answer: Just what they sounds like.

You trade 1 day Bitcoin futures contracts on Bakkt, and they are settled the next day in Bitcoin. i.e. you get physical Bitcoin in your Bakkt account equal to your holdings in futures contracts from the previous day at the start of each trading day.

You can see the official Bakkt page on the ICE website for details now (TIP: trading starts Dec 12, 2018 pending regulatory approval).

This lets you bet on the price of Bitcoin in the moment using contracts, but lets you start each trading day with your balance in physical Bitcoin.

It is, in simple terms, just about the closest you can get to just trading Bitcoin without physically trading Bitcoin.

The point of this being that if you want to play the BTC to USD game with Bakkt, it’ll involve holding actual Bitcoin.

Meanwhile, since there is no leverage on Bakkt, you are always working at a 1:1 ratio.

That also means that as demand goes up, there will be physical Bitcoin being held in Bakkt accounts rather than floating around on the open market (unlike with Bitmex for example where you can leverage against physical BTC and unlike CBOE or CME where you only hold USD).

This also means that it is likely to avoid any premium like we see with GBTC or might see with an ETF.

The gist is simple, the details I am not clear on yet.

For example, it isn’t clear to me if this works like an exchange (where you have a custodial wallet of sorts) or if they will deliver to any BTC address. I am also not sure if every transfer to accounts is recorded on the blockchain, or if Bakkt holds Bitcoin in cold storage and accounts are credited (thus balances would represent Bitcoin held by Bakkt, but would represent individual transactions on the blockchain.

Right now I’m working off what I know from filings, the official site, Bakkt’s Twitter, and Medium posts. As I know more I’ll be able to correct any errors I made and fill in the blanks.

For now the answer to the question “what are physically delivered Bitcoin futures contracts” is, “just what it sounds like.”

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