TL;DR: “Some believe Bakkt’s volume is fully backed by bitcoins,” economist Alex Krüger asserted. “This is not even remotely the case. Almost nobody takes physical delivery.” It’s part of his contention that the first US-regulated, physically delivered bitcoin futures exchange is operating less and less as perhaps initially intended or sold to crypto enthusiasts.
Bakkt Bitcoin Futures: Almost Nobody Takes Physical Delivery
“Bakkt futures are paper contracts offering physical delivery,” Krüger continued. “Futures are not backed by bitcoin. Traders trade on margin and need to have collateral (cash). Prior to expiry, traders close/roll or go physical. Those holding a short into expiry must have bitcoin in the warehouse.”
It’s that tension, between what Bakkt seemed to offer and how it has actually played out in the real world, giving Krüger intellectual ammunition to further assert the exchange, which rolled out in late September to much fanfare and hype this year, “is no panacea.” He does not believe the seeming contraction to be problematic, however, and referred to Bakkt’s subsequent operations to be “normal for futures traders to not take delivery, in all assets.” It’s a fact most people who unthinkingly champion Bakkt’s supposed volume increases might not understand. The exchange has also revealed its plans to offer bitcoin options in mere days.
He’s also pointed out the exchange’s volume is growing, albeit from “a low base.” Volume wasn’t the real worry, as the proposition making “Bakkt special for bulls is not its volume, but how many bitcoins are physically delivered,” and those numbers appear to be falling. “In November, the number was 17 bitcoins. In October, 15,” Krüger noted. Analysts have pointed out Bakkt’s volumes are already 10% of those on early-to-market legacy rival CME’s, for whatever that’s worth.
With Bakkt’s daily and monthly bitcoin futures contracts, the “daily settles every day rather than once a month, with physical delivery in the Bakkt warehouse. It’s the one you buy if you want to buy bitcoin and store it in a regulated warehouse. Its volume is … zero … everyday,” he insisted. Actually, twice in September 1 bitcoin was delivered. He also believes that regulated volume and Bakkt are ultimately good for the ecosystem, but enthusiasts “do blow Bakkt out of proportion though. I get shared the amazing growth of Bakkt volumes three times a day, as if it were a key determinant of market direction.” So far that has for sure not been the case as prices have turned sour since Bakkt’s formal arrival, and, perhaps unrelated, its CEO is expected to leave for an interim US Senate seat.
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