Growing institutional interest is helping to drive a recent spike in volume on Bakkt, according to its president, Adam White. But the U.S.-regulated crypto derivatives exchange is holding out hope its dormant options platform will eventually gain traction.
Trading volumes for physically settled bitcoin futures on Bakkt rose to $134 million on Tuesday from a previous high of $132 million on July 28, according to crypto derivatives data firm Skew. Bakkt went live last September.
âThe market recognizes the value that a regulated physically delivered bitcoin future offers for hedging and risk management and speculation,â White told CoinDesk in a phone interview on Aug. 26.
Related: Bitcoin Options Open Interest Nears All Time High â But Rise in Puts Could Presage Drop
This has been part of the significant growth in bitcoinâs derivative market as a whole, after the cryptocurrencyâs price went above $11,000.
Getting physical with bitcoin
Despite the recent surge on Bakktâs bitcoin futures trading volumes, it still lags behind the Chicago-based CME Group, a bigger, U.S.-regulated exchange. Data from Skew shows the aggregated daily volumes of bitcoin futures on Bakkt and the CME were at $279 million and $1.5 billion, respectively, on Monday.
Compared with many offshore, unregulated exchanges that have taken the majority of the bitcoin futures market share, White said Bakkt has the advantage of being based in the U.S. and owned by the Intercontinental Exchange (ICE), which also owns the New York Stock Exchange.
âWe are a fully regulated intermediated traditional futures market. Contrast that with the offshore unregulated markets that you see trading on a lot of crypto exchanges,â he said.
Related: Bitcoin Ends July at Highest Monthly Close Since 2017 Peak
The crypto derivatives provider launched its bitcoin futures contracts in late 2019 with the goal of serving its institutional clients, who range from market makers and proprietary trading firms to family offices and traditional hedge funds, according to White.
At the same time, unlike the CME, Bakktâs bitcoin futures contracts are mostly settled with physically delivered bitcoin, meaning buyers receive tokens at expiration instead of cash.Â
Some U.S. institutions are only allowed to trade on regulated exchanges. Thus, if they want to get into crypto, they have two choices: Bakkt or the CME, because exchanges such as Coinbase are licensed but unregulated in the U.S. For those who want to hold their bitcoin in their hands, Bakkt is basically the only game in town.Â Â
White said the physical delivery of bitcoin puts Bakkt at advantage because the exchange is seeing more clients interested in receiving crypto assets.
Read more: Itâs Too Soon to Write Off Bakkt, Wall Street Analyst Tells ICE Investors
âItâs not a bet on the price of bitcoin,â he said. âIt doesnât rely on an index price created from unregulated spot markets that are self-reporting their data.â
In addition, White said that as the market grows, more traditional institutional investors are becoming âcomfortableâ with holding and trading crypto assets, which is evidenced by Bakktâs increasing market share.
However, other industry experts have said physical delivery of bitcoin could be the one factor that has been hindering Bakktâs growth in the crypto derivatives market.
According to Norwegian cryptocurrency analysis firm Arcane Research, the number of bitcoin contracts held to expiry on Bakkt dropped sharply in July, to 58 BTC from Juneâs 221 BTC â the lowest amount held to expiry so far in 2020.
Compared with a cash settlement, physical delivery of bitcoin could impose a tighter margin, Vishal Shah, an options trader and founder of derivative exchange Alpha5, told CoinDesk via Telegram.
No options, for now
Despite the success with its bitcoin futures products, Bakkt seems to be still struggling with its options contracts. No volume or open interest have been logged since June 15 in Bakktâs bitcoin options.
Both futures and options contracts on CME are settled with cash.
Meanwhile, CMEâs bitcoin options contracts contributed about 10% to the total global open interest on Tuesday, second behind Deribit, who accounted for 80% of the market. Open interest is the number of outstanding contracts.
White shrugs off concerns about Bakktâs options products, saying the crypto options market as a whole has a long way to go before it matures.
Read more: Bitcoin Options Open Interest Nears All Time High â But Rise in Puts Could Presage Drop
âWhen people ask, âArenât you worried about your options volumes?â Absolutely not,â White said. âThese are the early innings. Most of the options volume is happening offshore, unregulated, not cleared and, frankly, weâre not even sure how much of that volume is legitimate.â
White is banking on growing trading volumes and open interest Bakktâs futures products to eventually draw customers to its options suite, and is therefore not planning on delisting options contracts anytime soon.
âAs the institutions move into the futures, their hedging and risk management needs will evolve towards options, and we are going to be there ready to serve them,â White said.
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