Cryptocurrency Derivatives Series: Bakkt Back In Action, Likely To Introduce Bitcoin Options

The new cryptocurrency start-up, ‘Bakkt’ established by the Intercontinental Exchange (ICE), have begun offering trading platform for the bitcoin futures contracts with physically delivery facilities on 23rd September. Now, they are all set to launch bitcoin options on futures.

Well, the objective would be to offer new tracks especially for institutional clients and retail traders to make an access for cryptocurrency trading. 

ICE, which is the parent of the NYSE, originally intended to unveil Bakkt back in mid-December. Then it was deferred to late January’2019. Later on, the launch was seen a lacklustre response but gradually picking up the momentum of late.

For now, the cryptocurrency-avenue is interested in the launch of ICE’s Bakkt (BTC’s options on futures) after the tepid response to the physically deliverable bitcoin futures. 

It has made this announcement in a Medium blogspot. The COO of Bakkt, Mr. Adam White has also clarified the news by taking a twitter handle to made this announcement.

Bakkt has now announced the launch date also (December 9th) of the first regulated options contract for bitcoin futures. We’re committed to bringing trust and utility to digital assets and the options contract is an example of the many products we’re developing for regulated markets. The Bakkt Bitcoin Options contract will be based on the benchmark Bakkt Monthly Bitcoin Futures contract and represents another important step in developing this asset class for institutional investors, their customers and investors.

The listing of derivatives products of bitcoin (especially futures with physical delivery) on a regulated exchange should serve to enhance the bitcoin market structure by allowing investors, particularly miners, to better hedge existing bitcoin exposures. This is because existing cash-settled futures may only allow for imperfect hedging as hedgers are susceptible to price risk associated with converting bitcoin to cash at maturity. And there is an issue of potential manipulation with cash-settled contracts as settlement is based on a collection of spot prices from a number of exchanges with variable liquidity, which traders may be able to manipulate around the time of the futures contracts expiry. 

The undelrying price of bitcoin (at Coinbase) is still stuck in a narrow range of $7,535 - $7,400 levels, after the steep slumps from the September highs of $10,939 to the recent lows of $7,296 levels.