Banks on Sidelines May Limit Early Bakkt Bitcoin Futures Volume
Banks on Sidelines May Limit Early Bakkt Bitcoin Futures Volume
(Bloomberg) -- The number of banks willing to act as a gateway to allow customers to buy and sell Bitcoin futures on Intercontinental Exchange Inc. may be a key to the success or failure of the new contract.
On the first day of trading, 72 monthly contracts changed hands Monday, followed by 166 Tuesday. As of 2:19 p.m. Wednesday in New York, 69 monthly futures had traded. Only one one-day contract traded so far this week. When the CME Group Inc. started its Bitcoin contract in December 2017, 221 contracts traded in the first hour, with several thousand now trading daily. A key difference between the two is that ICE’s future delivers actual Bitcoin if an investor holds to expiration; CME’s contract settles in cash.
Cryptocurrencies sold off broadly on Tuesday, with Bitcoin dropping below $9,000 for the first time in three months. On an intraday basis, Bitcoin’s 17% drop was its largest since January 2018. It extended its decline for a fourth day on Wednesday to trade at $8,361.
ICE spokesman Damon Leavell earlier this week declined to say how many so-called futures commission merchants were signed up to act as brokers.
“We do have a handful of FCMs expected to support the launch,” Leavell said in an email. “We had strong support from our day one traders,” he said yesterday in response to questions. “The first physical delivery of Bitcoin will take place on Wednesday and we continue to onboard trading and clearing firms.”
Banks are staying away from Bitcoin futures in general due to risk concerns, Bloomberg Intelligence analyst Ben Elliot wrote earlier this year. “Morgan Stanley and Goldman Sachs are among banks clearing Bitcoin futures,” he wrote in May. “JPMorgan, Citi and other FCMs could enter the space if demand grows.”
Another question is if ICE’s traditional customers are comfortable jumping into Bitcoin futures, said Rich Repetto, an analyst at Sandler O’Neill & Partners LP. Additionally, the fact that the ICE contract settles in Bitcoin may be making some users hesitant to trade for now, he said.
“That’s a whole new set of rules around a product that isn’t fully liquid or accepted,” Repetto said in an email response to questions.
To contact the reporter on this story: Matthew Leising in Los Angeles at mleising@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dave Liedtka, Brendan Walsh
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