Bloomberg reported today that Nasdaq is still planning to launch trading of bitcoin futures (targeted for the first quarter of 2019) and NYSE owner, Intercontinental Exchange (ICE), recently announced that their planned Bakkt bitcoin futures will start trading in January 2019, showing that Wall Street exchanges are expecting the crypto winter thaw will begin in 2019.
Futures are a type of financial contract that sets a date and price for the sale of the asset. They are typically used to hedge or speculate on the future price of the asset and can be used as part of more complex trading strategies commonly used by institutional investors.
The two major futures exchanges in the U.S., the Cboe and CME, have offered bitcoin futures to investors since December of 2017. However, the Cboe and CME bitcoin futures are cash-settled, meaning that only the cash equivalent is exchanged on the expiration of the contract.
Nasdaq Bitcoin Futures Over a Year in the Making
Nasdaq has been rumoured to be planning bitcoin futures since the bitcoin bull run in November of last year. Bloomberg received the latest news that the project was on track for January 2019 from two people familiar with the matter who indicated that the Wall Street exchange was working to satisfy regulatory concerns before launching the offering.
Few details are available about the Nasdaq bitcoin futures plan, but the CEO, Adena Friedman, did confirm to CNBC in January 2018 that the exchange is looking into futures of the cryptocurrency and that the offering may be differentiated from their competitors.
Nasdaq may have been trying to jump on the bandwagon last year given that the initial rumour followed shortly after the announcement that bitcoin futures would be coming to rival Cboe and CME exchanges. However, the report that the exchange is still pursuing the project is a sign that they believe there is still a demand. This, despite the fact that reportedly there has been limited volume in the existing Cboe and CME bitcoin futures.
Bakkt Bitcoin Futures Delayed to January 2019
Bakkt, a spin-off of the Intercontinental Exchange (ICE), which was initially announced in August as a ‘global platform and ecosystem for digital assets’, had initially been targeting the start of trading of bitcoin futures in November 2018 but recently delayed that projection to late January 2019.
Bakkt bitcoin futures will be physically-settled unlike those from CME and Cboe, thus the platform will also include a clearing and settlement solution through the Bakkt Warehouse for bitcoin to be exchanged between the future buyer and seller on the expiry date of the contract.
In a blog post on Medium, Bakkt CEO, Kelly Loeffler, explained that the company continues to seek regulatory clarity from the Commodity Futures Trading Commission (CFTC) on their bitcoin futures offering.
What’s the big deal with Bitcoin Futures Anyways?
So why all this fuss over Nasdaq and Bakkt creating bitcoin futures products when Cboe and CME have offered them for over a year?
First of all, both the Nasdaq and Bakkt futures are going through a new regulatory process with the CFTC, as the Cboe and CME futures used an expedited self-certification process. The clearing of any regulatory hurdles and receiving the blessing of U.S. authorities in cryptocurrency is definitely a positive step for the market. Clarifying regulatory murkiness is critical for the crypto market as it eliminates a risk to investors who are concerned that government regulations could significantly hamper the value and/or utility of cryptocurrencies.
The second reason there is interest in both the Nasdaq and Bakkt plans is that many see the expanding of futures and other options products for crypto as the barrier to entry for institutional investors to enter the market in a big way. The insights gained from trading data of bitcoin futures on major platforms such as the Nasdaq or Bakkt could be a leading indicator of institutional adoption of crypto.
The narrative goes that much of the trading of cryptocurrencies up until the end of 2017 has been driven by retail investors and that institutional investors have just started to enter the market.
Building Crypto Products when the Market is Selling Off
While some might think the ongoing crypto market sell-off has affected the plans of those hoping to get institutional money into crypto, the people building these products don’t seem concerned.
Echoing her thoughts, @ICE_Markets CEO/founder Jeffrey Sprecher notes that "we’re the largest exchange operator in the world and we price all kinds of things on our exchanges … we’re kind of agnostic on price." #ConsensusInvest
— CoinDesk (@coindesk) November 27, 2018
Loeffler says @Bakkt wants to create a regulated form of price discovery, which could open the door for other products around bitcoin and crypto
— CoinDesk (@coindesk) November 27, 2018
Perhaps this is a case where the Wall Street exchanges are hoping to attract institutional investors into playing the bitcoin futures with the age-old credo of buy low, sell high. If that’s the case then for the short-sighted, bitcoin these days seems like it could be ripe for the big money to start flowing in 2019.
Bitcoin – USD Price Last 3 Months
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