On Sunday, a momentous occasion took place for the cryptocurrency industry: The Intercontinental Exchange-backed Bakkt launched its much-awaited Bitcoin futures contracts to institutions after nearly a year of regulatory setbacks and logistical hurdles.
The platform, prior to launch, was seen as the one catalyst that could catapult Bitcoin to new heights. But to the surprise of many, the Bitcoin market didn’t see so-called fireworks at the launch of the exchange. Instead, the cryptocurrency market flatlined, then began to dump.
While there was no clear catalyst for the price drawdown, which pushed Bitcoin from $10,100 to $9,700, many investors pointed to Bakkt, claiming that the exchange was a “flop” and had “failed”.
Indeed, according to the Intercontinental Exchange’s market data says that the product has processed a mere ~70 BTC in volumes for its first trading session, paling in comparison to, say, the CME’s Bitcoin market.
But, analysts say it is too early to determine if Bakkt has failed. They say it’s worth waiting. Here’s why.
Hold Your Horses on Bakkt
If you have perused Crypto Twitter anytime over the past 24 hours, you likely would have spotted a trend: Bakkt getting absolutely trashed by cryptocurrency investors from the industry over.
As mentioned, the primary contention seems to be Bakkt’s lack of trading activity, especially since just weeks ago the narrative was that the “institutional herd” was lining up to storm Bitcoin markets.
But have no fear, analysts assert. Expert trader Su Zhu, the chief executive of Three Arrows Capital, has said that Bakkt’s Bitcoin markets will likely at first see a “trickle and then a flood”.
He explains that “most regulated futures contracts”, including traditional markets, see “low adoption on day one simply because not all futures brokers are ready to clear it.” Indeed, the “physical” delivery aspect of this new contract has likely only added to the logistical complications of dealing with Bitcoin.
Bakkt will be likely first a trickle and then a flood. The reality is that most regulated futures contracts get low adoption on day1 simply b/c not all futures brokers are ready to clear it, many ppl want to wait and see, the tickers are not even populated on risk systems, etc.
— Su Zhu (@zhusu) September 23, 2019
Zhu goes on to point out that the lack of volume seen in Bakkt’s markets may also have much to do with “people wanting to wait and see”, coupled with the fact that the exchange’s market data are not available for risk analysis.
Adam Back, a Bitcoin pioneer and a co-founder of Blockstream, has echoed this sentiment. The cryptographer wrote in his own reassuring message that “it takes time” for institutions to get onboarded onto such new exchanges, adding that it took months before the CME’s Bitcoin futures saw any notable volumes.
Long-Term Benefits for Bitcoin
Even if Bakkt doesn’t perform well in the medium-term, analysts are convinced that this new Bitcoin investment vehicle will only be a benefit to the cryptocurrency markets in the long run.
In a tweet published prior to the Sunday launch, Thomas Lee of Fundstrat Global Advisors explained that he believes that Bakkt will only improve institutional access to Bitcoin.
With a list of prominent backers — namely the Intercontinental Exchange, Microsoft, Starbucks, and crypto-native funds Pantera Capital and Galaxy Digital, Bakkt is likely to attract institutions that are on the verge of downing the cryptocurrency red pill.
PlanB, a quantitative analyst from a European institution that has delved into Bitcoin, has echoed this. Presumably citing his own experience as an institutional trader, the pseudonymous statistician argued in a podcast that the liquidity that Bakkt provides will be huge for this market.
He also added that Bakkt’s contracts will only build on Bitcoin’s network effect of scarcity, as the physical settlement of the future will disallow the creation of more than 21 million “paper BTC”.