Recently, New York Stock Exchanges’s Intercontinental Exchange [ICE] announced that they will be launching Bakkt, an exchange platform for cryptocurrency in the month of November 2018. The news spread like wildfire in the cryptocurrency space. The announcement was made days before the SEC’s stance on the VanEck ETF.
The announcement turned out to be the most controversial one because ICE stated that they have been working on the project for almost 9 months and in collaboration with Starbucks and Microsoft cloud solutions. Moreover, it is set to become the first regulated market for cryptocurrencies. This was one of the main factors taken into consideration by the SEC for rejecting the Winklevoss ETF.
ICE had stated that the platform would include federally regulated Bitcoin futures contract, markets, and warehousing with merchant and consumer applications.
On 20th August, the CEO of Bakkt, Kelly Loeffler, revealed more details of the much-awaited platform on her blog. On the blog, Kelly has laid down the ‘proven framework’. This includes having an established regulated framework, an efficient and transparent price discovery and a pre-trade and post-trade with institutional standards.
Bakkt on Twitter announced:
“With our solution the buying and selling of bitcoin is fully collateralized or pre-funded. Our new daily bitcoin contract will not be traded on margin, use leverage or serve to create a paper claim on a real asset.”
Moreover, Kelly highlighted that unlike other exchanges, Bakkt’s Bitcoin contract will not be traded on margin, use leverage or serve or create a paper claim on a real asset. According to her, this would differentiate Bakkt from the existing futures market and cryptocurrency exchanges which are providing margin, leverage, and cash settlement services while maintaining the market integrity.
The term margin trading refers to trading which involves borrowing funds. This service is provided by the exchanges, allowing customers of the platform to trade more than what they could have with only their funds. Customers are required to register with the platform, after which, they can leverage the funds from the platform. If the customers end up incurring a loss, they will only lose the money they have invested. The top cryptocurrency exchanges offering leverage service at present are BitMEX, Bitfinex, OkCoin, Kraken, Poloniex, and Coinbase Pro.
Bitcoin futures contract refers to the contracts which will be intact for a stipulated period. Until the expiration of the contract, the user will not be able to settle the contract. The Bitcoin cash-settlement futures refers to the futures which are settled in cash and not in the asset which the contract is based on.
Even as Bakkt has mentioned that they will not be using margin or leverage to offer the projects, they have not mentioned about any other leverage. The secret leverage has stirred up the whole cryptocurrency community on the social media platform.
Light_of_Lucifier, a Redditor said:
“This is really going to shit on all the ratios”
Caitlin Long, Former Chairman at Symbiont said:
“Interesting response from Bakkt today. For #bitcoin this is good news/bad news. First the good–Bakkt disclosed its not using margin or leverage (explicitly). That’s positive. But then the bad–it was silent about hidden leverage, which is subtle”
She further added:
“… I look forward to reviewing all of @Bakkt’s legal documents when they’re made public (including the warehouse custody agreement of ICE Clearing US & intraday variation margin posting requirements) to determine the degree by which @Bakkt creates fractionally-reserved claims on #bitcoin.”
Regretandreward, a Twitterati said:
“Fantastic! This emerging asset class doesn’t need margin trading with the extreme volatility already present. Thank you for being responsible”
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