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Bakkt: Bitcoin Futures Exchange Guide

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bakkt-crypto-exchange

Bakkt, ran by Intercontinental Exchange (ICE), parent company of the New York Stock Exchange (NYSE), is a leading institutional-grade Bitcoin Futures trading platform that looks to legitimize the cryptocurrency exchange arena by bringing transparency and trust to digital assets in grandiose fashion.

Bakkt, which looks to enhance the ability of buying, selling, storing and spending Bitcoin along with acting as a regulated trading, clearing and warehousing solution, burst onto the scene in September 2019 after over a year of anticipation. The very first historical record of Bakkt was back on August 3, 2018 when news about the bitcoin futures exchange broke about ICE, Microsoft and Starbucks all being involved in the launch to take Bitcoin mainstream and attract institutional investment money. Let’s review how Bakkt works.

Bakkt User Guide: The Institutional-Grade Crypto Exchange

Here is a bullet point breakdown of all the basic building blocks the new bitcoin trading exchange offers:

Features

  • Physically-delivered bitcoin futures contracts
  • Owned by Intercontinental Exchange (which also run the NYSE)
  • Aimed at institutional investors

Deposit Methods

  • N/A (deposits only available to institutional investors)

Pros

  • Institutional grade crypto custody and trading
  • Highly-regulated and compliant environment
  • Uses ICE’s existing institutional market infrastructure

Cons

  • Caters exclusively to institutional investors
  • Currently only offers bitcoin futures trading

Company Details

  • ICE Futures US (IFUS) Products: Bakkt Bitcoin Daily Futures + Bakkt Bitcoin Monthly Futures
  • Founded / Launched: August 2018 / September 2019
  • Location: Atlanta, Georgia
  • Official website: Bakkt.com
  • Owner: Intercontinental Exchange (ICE), parent company of New York Stock Exchange (NYSE)
  • Team: Kelly Loeffler CEO, Adam White COO, Balaji Devarasetty VP Tech, Mike Blandina CPO
  • Social Profiles: Twitter, Facebook, LinkedIn, Instagram, Blog
  • Email: info@bakkt.com

Introduction

Bakkt has been a highly-anticipated bitcoin trading platform since being announced in August 2018 because it plans on being the first to offer day-one physically-settled Bitcoin futures contracts. Finally, after over a year of anticipation, Bakkt launched bitcoin futures trading on September 23, 2019. The earliest reports of Bakkt show along side ICE and Microsoft, M12 (Microsoft’s Venture Capital arm), Pantera Capital, Galaxy Digital, Boston Consulting Group and Horizons Ventures were also initial investors. Bakkt, who has raised over $182.5 million to-date, is also aligned with Susquehanna International Group, Parafi Capital, PayU, Goldfinch Partners, Fortress Investment Group and Eagle Seven in a bid to offer bitcoin pension funds, mutual funds and exchange-traded funds (ETFs) for major money managers in the future.

Bakkt, who is technically not an exchange or clearinghouse, is a qualified custodian of digital assets who wants to strengthen consumer applications and payments for virtual currencies by officially launching a bitcoin futures platform with regulated price discovery features that do not rely on trade data from spot markets.

Other platforms offer bitcoin futures trading already. So what makes Bakkt different? Bakkt’s bitcoin futures are physically-settled, or deliverable which means real bitcoin is being moved with every trade.

bakkt-bitcoin-futures-contract-detailsBakkt also differentiates itself from the competition with institutional-grade infrastructure. The exchange was launched by InterContinental Exchange (ICE), which owns and operates the New York Stock Exchange (NYSE) and other major trading platforms. ICE has implemented its NYSE-style, CFTC-compliant infrastructure into Bakkt from the ground up. By pairing this infrastructure with institutional-grade custody solutions, Bakkt could draw more institutional investors to bitcoin than any platform that has come before it.

bakkt-bitcoin-exchange-benefits

It’s also important to note that bitcoin futures are only the first product offered by Bakkt. The platform aims to launch more products moving forward, including full-fledged crypto trading for institutional investors and the public. And because its regulated bitcoin price discovery functionality, it will not be effected by trading volume manipulation like wash trades and other fraudulent activities.

bakkt-bitcoin-futures-trading-chart

Ultimately, Bakkt is still in the early days of launch, but it’s already giving institutional investors a safe and accessible way to enter crypto markets. The next question is: will institutional investors jump on board?

Key Features

Bakkt, who aims to enable access for every spectrum of investor to get involved with cryptocurrencies, from consumers to merchants to institutions, looks to prioritize security and trust for the emerging digital asset class by offering smart custody, payments, markets and compliance solutions.

Key features of Bakkt include:

Institutional Crypto Custody: Bakkt makes secure, institutional-grade storage a key feature of its platform. Bakkt uses state-of-the-art physical and cyber security combined with institutional grade technology and governance to secure digital assets for clients. These are the same cybersecurity defenses underpinning exchanges like ICE and NYSE. All customer bitcoins are stored in the Bakkt Warehouse, which is operated by a limited purpose trust company regulated by the New York State Department of Financial Services (NYSDFS) that is serving as a qualified custodian. They also acquired companies Rosenthal Collins Group (RCG – on January 16, 2019) and Digital Asset Custody Company (DACC – on April 30, 2019) to help boost its cryptoasset custody and storage expansion along with working closely with BNY Mellon bank.

Physically Delivered Futures Contracts: Bakkt introduces physically delivered futures contracts, where physical bitcoin is traded via futures contracts. Although other bitcoin futures markets certainly exist, Bakkt is the first to offer physically-delivered bitcoin futures contracts.

Open to Accredited Investors: All Bakkt participants undergo applicable AML/KYC reviews consistent with CFTC-regulated markets, then connect to Bakkt using ICE’s existing infrastructure.

Compliant and Regulated Environment: Bakkt has been designed as a compliant and regulated environment from the ground up at both the institutional and consumer level. On-chain analytics and surveillance are available for all deposits and withdrawals. Bakkt will also routinely participate in financial and security audits as well as regulatory compliance reviews.

Regulated, Compliant Bitcoin Futures Trading: Bakkt’s daily and monthly bitcoin futures trading is compliant with the CFTC’s regulatory requirements as well as the compliance regime governing other contracts at IFUS, a CFTC-regulated Designated Contract Market (DCM) and at ICE Clear US (ICUS), a CFTC-regulated Derivatives Clearing Organization (DCO).

Supported by Corporate Partners: Microsoft, Starbucks, and other major corporations have been Bakkt partners since the project was announced. There have been few projects in the crypto space with the type of corporate support we see with Bakkt.

Available to Institutions and Consumers: Bakkt is initially focused on bringing regulated crypto trading to institutional investors, although the ultimate plan is to offer a platform for both consumers and institutional investors alike.

Merchant Support: In addition to catering to institutional and consumer investors, Bakkt will partner with merchants and enable them easier access to the digital ecosystem.

Fully Insured: Bakkt’s cold and warm wallets are covered by a $125 million insurance policy. This not only means that the funds are covered in the event of a loss, but it also means the insurance company is satisfied with Bakkt’s security procedures.

Bakkt Currencies and Pairs

At launch in September 2019, Bakkt supports just a single type of trade: bitcoin (USD) futures:

  • Bitcoin (USD) Daily Futures
  • Bitcoin (USD) Monthly Futures

bakkt-btc-usd-daily-future-market-specs

The Bakkt Bitcoin Daily (BTC) and Monthly (BTM) Futures contracts are tradeable for 22 hours each day from 8PM ET Sundays to 6PM ET Fridays. There is also no pre-fund, hold or desposit bitcoin requirements to trade Bakkt’s futures contracts.

Withdrawal Methods

Bakkt currently caters exclusively to institutional investors, and ordinary consumer deposit and withdrawal methods have not been disclosed.

Bakkt Registration and Login Process

Bakkt caters to institutional investors and has not yet opened registration to ordinary consumers. Full details of the KYC/AML and verification process have not been released.

However, Bakkt does require institutional investors to jump through considerable hoops to use the platform. Participants undergo applicable AML/KYC reviews consistent with CFTC-regulated markets, for example, and connect to the exchange using ICE’s existing infrastructure. Bakkt claims its KYC/AML requirements are “bank level”.

Bakkt: Bitcoin Futures Exchange Guide 1

Bakkt Trading

Bakkt currently only offers bitcoin (USD) daily and monthly futures. The physically-delivered futures trading platform is available exclusively to institutional investors as of launch in September 2019. When Bakkt opens to ordinary consumers at some point in the future, we’ll explain in further detail how trading works on Bakkt.

Bakkt: Bitcoin Futures Exchange Guide 2

Currently, Bakkt’s USD futures contract trading is listed under the trading screen hub name ICUS. There’s no daily price limit. Contract sizes are 1 bitcoin, with prices quotes in US Dollars per bitcoin down to two decimal places. There’s a minimum price fluctuation of $2.50 per bitcoin ($2.50 per contract), and Block Trades may be executed at $0.01 per bitcoin ($0.01 per contract). There’s a Block Trade minimum of 10 lots.

bakkt-bitcoin-usd-monthly-futures-chart

Here is what the official Bakkt website shows as part of its ‘Bitcoin Futures Workflow’ chart:

bakkt-bitcoin-futures-workflow-chart

Bakkt Bitcoin Options on Futures:

The Bakkt Bitcoin Options contracts are a newly-forming announcement that intends on launching on December 9, 2019. As an cryptocurrency industry-first, Bakkt’s regulated options contracts for bitcoin futures will debut with key characteristics such as capital efficiency, cash or physical settlement, European style option, attractive fees, broad distribution and liquidity, instant messaging, block trades and options analytics. We will update this Bakkt review on their Bitcoin Options contract, which will be benchmarked by their Bakkt Monthly Bitcoin Futures contract, once more details are made available at the end of this year.

Bakkt Warehouse Custody

Aside from the Bakkt Bitcoin Futures launch, the Bakkt Warehouse custody, which was built by ICE from the ground up and took over two years to create, is the next major feature they are bringing to the cryptocurrency ecosystem.

The Bakkt Warehouse, which is a smart crypto custody solution for enabling physical delivery of Bitcoin, is designed with two major features in mind. First, it helps remove the need for futrues commission merchants in order to interact with Bitcoin and second it acts as a qualified custodian due to its Bakkt Trust Company, which is vital in regards to meeting institutional standards.

bakkt-crypto-custody-review

With a security-first approach and regulated by the New York State Department of Financial Services (NYDFS), Bakkt custody solution aims to protect customer’s assets utilizing enterprise-level safeguarding capabilities, much like they use for the New York Stock Exchange and ICE’s dozen other exchange platforms around the world.

The bank-grade compliant Bakkt Warehouse will leverage online (warm) and offline (cold) digit asset storage options to help bridge the gap between functionality and ease of use as well as minimizing risks associated with hot wallets. Both sets of wallets, from air-gapped bank-grade vaults to 24/7 on-site armed security, will have a $125 million insurance policy and has a partnership with BNY Mellon to help safekeep the cryptoassets.

They also touch on their entire systems security features as well as disaster recovery of private cryptographic keys of its users. They will implement all AML and KYC (anti-money laundering and know your customer) protocols as well as implement on-chain surveillance techniques to verify crypto asset provenance. It was reported that the only interaction between Bakkt and Bitcoin’s blockchain will take place at the Bakkt Warehouse when users deposit and withdraw their BTC holdings.

Bakkt Fees

Bakkt charges the following fees for bitcoin daily and futures contracts:

Exchange and Clearing Fee – Screen Trades: $1.00 per contract (daily); $1.25 per contract (monthly)

Exchange and Clearing Fee – EPP & Block Trades: $1.60 per contract (daily); $1.85 per contract (monthly)

Delivery Fee: $9.75 per contract (daily); $9.75 per contract (monthly)

Custody Fees: Bakkt has scheduled a “fee holiday” for its Bakkt Warehouse custody service through June 30, 2020. Bakkt’s custody service is free to that date.

Bakkt has not released its fee schedule for other crypto trades, and we do not know how Bakkt’s fee structure will compete with other major exchanges and trading platforms.

Bakkt Security Issues and Downtime

Bakkt launched on September 23, 2019. The exchange has not suffered any major security breaches or downtime since launch. ICE and the NYSE are equally secure and have suffered no major security breaches in recent history. Overall, Bakkt is expected to be one of the safest and securest bitcoin trading platforms available. The Bakkt Holdings LLC’s subsidiary, Bakkt Trust Company LLC, is a New York State qualified licensed Bitcoin custody provider who is registered with the Financial Crimes Enforcement Network (FinCEN). Here is a chart displaying the relationship between legal regulatory bodies and ICE’s Bakkt Bitcoin Futures Market:

bakkt-bitcoin-futures-market-regulation

Ease of Use

Bakkt currently caters to institutional investors using the same platform seen with ICE and the NYSE. The platform will be familiar to those who have used other ICE platforms in the past. A consumer version of the platform has not yet been released, so we don’t know how Bakkt compares with traditional crypto exchange interfaces. Also, here are the Bakkt crypto exchange trading hours based on New York, London and Singapore timelines:

bakkt-exchange-trading-hours

Trust and Privacy

Bakkt has strict trust and privacy standards. All customers’ bitcoin will be stored in the Bakkt Warehouse, which is operated by a limited purpose trust company regulated by the New York State Department of Financial Services. That trust company serves as a qualified custodian. Bakkt has suffered no major privacy breaches or security breaches to date.

Customer Service

Bakkt can be contacted by email or online form. The firm has not yet unveiled its full-fledged customer service options, but we expect to see those options when Bakkt launches its consumer-facing product.

Bakkt User Guide: How to Setup and Use Bakkt

Bakkt has opened its trading platform to institutional clients. However, the platform has not yet opened trading for ordinary consumers or users.

bakkt-exchange-updates

When Bakkt opens its trading platform to users in the near future, we will publish a full guide explaining how to sign up, get verified, and begin trading on Bakkt.

Institutional investors who wish to sign up for Bakkt, meanwhile, need to email sales@bakkt.com to get started.

The future of Bakkt’s success remains to be seen, but as their official twitter tagline says, “expanding access to the global economy by building trust in and unlocking the value of digital assets” – the forecast of the Bakkt cryptocurrency exchange featuring their physically-settled Bitcoin Futures trading platform sure looks to be a bright spot for the market.

As a part two to this review of NYSE’s ICE crypto exchange and bitcoin futures platform, let’s take a trip back down memory lane and hack through all of the latest Bakkt news updates.

We are now witnessing the effects of the official Bakkt launch to a very eager and international audience, and to say that it will be a development widely isolated from the broader market would be to admit that you don’t fully ‘get’ cryptocurrency.

Historically speaking, whenever we’ve seen Bakkt show up in the news dating back to August 2018, it’s coincided with a range of peaks and troughs for Bitcoin among other kinds of cryptocurrencies. This week and everyone after has been no exception to that; as the enthusiasm builds after it finally launched, we’ve already seen Bitcoin lurch upwards.

There’s a lot of value that Bakkt brings to the cryptocurrency market, and its launch has all the potential to take the whole market to the next level. In an interview with Coin Telegraph recently, Tom Lee, the Co-Founder of Fundstradt Global Advisors was left with no allusions that Bakkt would have a positive impact on crypto’s credibility in the eyes of institutional traders:

“I am very positive on Bakkt and its ability to improve trust with institutions to crypto.”

While it’s faced its fair share of obstacles, whether that’s from technical issues or even stubborn push-back from regulatory agencies, specifically the Securities and Exchange Commission; having started off as a proposal back in August 2018. The CEO, Kelly Loeffler, who is wife to ICE CEO Jeffrey Sprecher, helps run the Bakkt blog website sharing all of the latest news updates and advancements.

So with such a momentous occasion being upon us now, in addition to all of the facts and figures above, it stands to reason that we should dive into the company and just how it has gone from an innovative idea to one of the most highly-anticipated bitcoin-centric company in the crypto world.

Back in Bakkt – The Start

For the purpose of better context – we answered what on earth is Bakkt exactly? And what is it bringing to the market above? But to begin with again, Bakkt is the brainchild of the New York Stock Exchange (NYSE) player and parent company – the Intercontinental Exchange (ICE). It came about with the companies increasing interest in providing a Bitcoin Futures solution for a growing investor-base.

The end-result was Bakkt, which was founded on July 31, 2008 according to Bloomberg but was not made publicly available until August. And some of the motivating factors behind this project were that if investors were to start putting money into cryptocurrencies, then they would be faced with the daunting prospect of dealing with a high-risk, high volatility market with no legal protections in place to safeguard their assets. As we have documented many times, “smart custody” is the next wave of Bitcoin and cryptoassets and Bakkt is in a prime position to be a leader in this capacity.

This is what prevents cryptos from really breaking into the mainstream, so if a business was to emerge on the scene and provide a system of much-needed accountability and professionalism, then it would be welcomed with a sigh of relief from regulatory agencies, and a welcoming embrace from investors that are increasingly interested in the space.

The underlying premise of the business is to, in the words of the company from its website, as stated above – “to bring transparency and trust to digital assets” thanks to a desire from the Bakkt team to engage a lot more closely with the investing community and their collective need for greater risk management and accountability from the space.

So what is it that really sets Bakkt apart from its decentralized counterparts? For one, it is much more than just a futures provider, even though that’s what we most likely associate with them.  In fact, it’s futures contract is just one of the services they provide, here are the solutions that Bakkt intends to bring for its users:

Bakkt Crypto Custody Solutions

Secure storage is actually something that the investing community is sorely after, and it’s one thing that Bakkt is wholly aware of. Bakkt intends to provide investment-grade security for its users, allowing them to really capitalize on the market, and make investments sure in the knowledge that they are held with the best kind of security that can be provided.

According to the companies website:

“With state-of-the-art physical and cybersecurity, institutional-grade technology and governance, and backed by insurance for digital assets held in frozen wallets, Bakkt is delivering a new standard in digital asset custody by leveraging the cybersecurity tools on which the NYSE relies.”

There’s far more to its custody solutions than just investment grade security, as the company made plain in a blog post back in August:

“The Bakkt Warehouse, which is part of the Bakkt Trust Company, is built using the cyber and physical security protections that support the world’s most actively traded markets, including the NYSE,” per the post. “In addition, the independent governance and compliance requirements of a qualified custodian mean that the Bakkt Warehouse is designed to meet the highest standards of oversight.”

Dedicated Payments Solutions

Cryptocurrencies are well known for their potential for peer to peer trading, buying and selling. But even with this, having a reliable, trustless system is still direly needed for in the institutional investment world.

This is an element of Bakkt that is really targeting investors, especially considering the fact that investors looking to capitalize on this part of Bakkt’s services will need to provide a pretty substantial downpayment, where consumer-based investors are concerned.

According to a report earlier this month, investors need to provide an initial downpayment of $3,700 Bitcoin for both its futures contract and payments solutions. So no small deposit, then.

Here is what Bakkt has to say about its payments solutions:

“Whether between consumers and merchants or peers, the ability to conduct transactions in digital assets holds promise as these new global currencies evolve beyond a store of value or speculative assets, and as distributed ledger technology scales. Bakkt is working with leading merchants who recognize the potential of digital assets.”

Compliance Solution

We have previously dug into the subject of what separates decentralized from centralized exchanges, and one of them is the kind of relationship that these have with the matter of compliance.

Regulatory compliance is a major obstacle that decentralized exchanges avoid like a cryptocurrency-related plague, while centralized ones tend to abide by them in order to be recognised as professional players by investors.

Bakkt is not only a company that is rapidly getting added to the institutional family due to its relation to the ICE. But also thanks to the fact that it provides its would-be users with an investment framework that is wholly in compliance with regulatory procedures laid out by the United States Securities and Exchange Commission. Specifically when it comes to its requirements for robust security features for users, as well as Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.

“Bakkt’s focus on compliance spans all aspects of our operations. Whether AML and KYC at the institutional and consumer level, or on-chain analytics and surveillance for all crypto deposits and withdrawals, we will be continuously adding to ensure ours is the most robust, trusted platform. In addition, Bakkt will routinely participate in financial and security audits, as well as regulatory compliance reviews.”

Futures contract

And, of course, it would be remiss for us not to dive into the world of futures contracts, considering the fact that it’s what Bakkt is more commonly known for. The reason for this is because the company is breaking new ground thanks to the fact that these contracts are provided to buyers in conjunction with its own regulatory solutions, such as its own clearinghouse.

The latter element means that Bakkt can rapidly become a major global name, providing Bitcoin futures contracts for investors in the United States, as well as 30 countries all over the globe.

According to the Bakkt team, these are far more than just a series of virtual futures contracts, as it’s purchased and made some serious strides with its own physical storage solutions. On its dedicated Twitter account on August 28th, the Bakkt team will start to provide its users with storage space for its wide range of physical futures contracts.

“On Sept 6, our Warehouse will begin offering secure storage of customer bitcoin to prepare for the launch of Bakkt Bitcoin Daily & Monthly Futures when they launch on Sept 23. These contracts will enable physical delivery of bitcoin with end-to-end regulated markets and custody.”

According to sources, these storages spaces provide some high-spec protection for investors assets but are also covered with insurance policies of over $125 million.

Security Measures

Along with having insurance policies in the hundreds of millions, Bakkt provides a range of security solutions for its users, including a range of ‘cold’ and ‘warm’ wallets, according to the company:

“The Bakkt Warehouse is comprised of both online (“warm”) and offline, air-gapped (“cold”) digital asset storage. Bakkt systems algorithmically balance between both warm and cold storage tiers to minimize risks associated with warm storage.”

Depending on what kind of secure storage investors are looking for, they have the choice of either these ‘warm’ wallets; which consists of level-3 security modules, while also being network connected, allowing investors to have ready access to their assets. This gives the implication that this kind of storage is directed more at those interested in medium to short position trading.

Meanwhile, its cold storage solution for investors sounds like something akin to a cryptocurrency Fort Knox;

  • The majority of bitcoin stored in the Bakkt Warehouse is offline
  • Air-gapped systems stored in bank-grade vaults with sophisticated physical security controls
  • Wallet keys are sharded and encrypted at creation, with multiple key shards needed to sign a single transaction
  • Geographically distributed multi-signature transaction signing
  • Segregation of duties between internal teams
  • 24×7 on-site, armed security

So, it’s safe to say that investors are getting their money’s worth when they buy contracts with Bakkt.

When it comes to investor security and regulatory compliance, Bakkt is prepared for some pretty unique situations. Again, this is according to the company itself, and a brief read-through of its security features.

These features include action policies and planning for major disasters involving the loss of investor private keys. Bakkt enters the market with pre-made “Disaster Recovery (DR) and Business Continuity Planning (BCP)” contingencies by its own admission, after all.

Most Recent Bakkt News

While this has been a recap of what’s been going on with Bakkt, and what its products consist of, It’s important to take a look at some of its more recent developments too. 2019 has seen the company strike up a number of new partnerships ahead of the green light.

Some of these include its successful acquisition of the Digital Asset Custody Company (DACC) earlier in 2019. This acquisition basically serves to provide a greater remit over its own custodial solutions; bringing the expertise of the DACC into the fold to better refine Bakkt’s offerings.

Along with this, Bakkt more recently struck up a closer collaboration with BNY Mellon in order to further improve its storage solutions, both more broadly, but also more specifically when it comes to private key storage.

Bakkt has been a hotly-anticipated crypto trading platform since being announced in July 2018. Initially scheduled to launch in early 2019, Bakkt’s launch was pushed back to September 23, 2019, which is when the platform officially launched its daily and monthly bitcoin/USD futures for institutional investors.

Moving forward, Bakkt plans to attract institutional investors with a highly secure, regulated, and compliant trading environment. At the same time, Bakkt will eventually open trading to the general public.

 

With the support of some of America’s largest corporations and financial trading platforms, Bakkt could easily become the most influential force in the bitcoin trading scene. We hope this user guide helps everyone understand just how significant the new Bakkt Bitcoin Futures trading exchange is for the cryptocurrency market as a whole.





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