Intercontinental Exchange, the world’s second-largest exchange group by market value, is to launch trading in bitcoin futures next month, in a long-awaited bid to lure more Wall Street investors into the sometimes treacherous world of crypto. Bakkt, the business set up by the Atlanta-based group a year ago to develop infrastructure for trading digital assets, said on Friday that it would launch two physically delivered bitcoin futures contracts on September 23, one of them monthly and one daily.
Bakkt confirmed it would provide custody for the futures after gaining a trust licence from the New York State Department of Financial Services. Safekeeping of crypto assets has been a big concern of institutional investors, because exchanges have repeatedly suffered hacks and outages. The futures products, which had received a green light from the Commodity Futures Trading Commission, will list on the ICE Futures US derivatives exchange, while ICE’s clearing house will clear them. Institutional interest in the crypto assets market has waned since ICE announced its project in August 2018, as prices dropped from record highs and regulators began to circle the so-called “digital wild west”.
In March, Cboe Global Markets, the first big US derivatives exchange to offer bitcoin futures, pulled the plug on its product after volumes dried up. Nevertheless, bitcoin proper continues to attract speculative traders at a time of negative bond yields, which have increased the relative appeal of yieldless assets such as gold. The price of bitcoin has rallied from about $4,000 in April to about $10,000 today. In addition, Facebook’s plans to launch its own digital currency, Libra, raised hopes among crypto advocates that digital currencies may yet be used as a medium of exchange. Kelly Loeffler, Bakkt’s chief executive, said that ICE had received demand for the leveraged products from the Wall Street clients that typically trade ICE’s commodity, currency and stock index contracts.
Unlike existing futures contracts, which track bitcoin price indices and rely on unregulated data, the derivatives will be based on “deliveries” of actual bitcoin to a highly secure “warehouse”, the company said. This will be protected by $125m in insurance, it added. ICE has also contributed an extra $35m to its existing $68m guarantee fund to back the transactions at its clearing house. “The market was really built around retail participants,” said Ms Loeffler. “So stepping back and designing the market around institutional needs will help bring in more sophisticated participants.” Recommended Cryptocurrencies Bitcoin’s second coming makes Wall Street think again on crypto The company said it also expected to see crypto-focused businesses, such as cryptocurrency mining companies, use the futures to hedge risk rather than just for speculative purposes. Other financial services firms are seeking to develop services to store crypto assets safely.
Fidelity, the US asset manager, is among the institutions that has been working on a dedicated custody service, while US crypto exchange Coinbase recently acquired the custody business of wallet provider Xapo in a push into the institutional custody business. The company said it had no immediate plans to launch futures based on other popular cryptocurrencies, such as ethereum. Separately, Bakkt is working with Starbucks to give coffee drinkers a way to convert digital currencies into dollars to make purchases, which Ms Loeffler said would launch “in the coming months”. Bakkt initially sought regulatory oversight for its custody business from the CFTC, before turning to the NYDFS in April this year. Bakkt’s licence to operate from New York’s state financial regulator makes it the 22nd crypto company to receive one. “This approval demonstrates New York’s competitiveness as a hub of innovation and leadership in emerging technologies,” said Linda Lacewell, superintendent.