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The owner of the New York Stock Exchange is now in the Bitcoin business

September 23, 2019
Traders on the stock trading floor
Traders on the stock trading floorAssociated Press

Intercontinental Exchange (ICE) has finally opened the doors to its digital asset marketplace, called Bakkt, offering Bitcoin futures contracts. Many view the launch, which has been delayed for nearly nine months, as a crucial step toward mainstream adoption of digital assets. 

The futures of Bitcoin: Futures contracts are legal agreements to buy or sell a given commodity at a specific price at a specific time in the future. Bitcoin futures trading, which in the US is regulated by the Commodity Futures Trading Commission (CFTC), may be more attractive to traditional financial institutions than investing directly in the asset. Investors can use futures to bet that the price will fall, an approach that can be used as a hedge. 

ICE’s competitor the CME Group has been offering Bitcoin futures contracts since December 2017. According to the Wall Street Journal, more than $200 million worth of Bitcoin futures already change hands on an average day.

How Bakkt is unique: The new contracts will be the first to be “physically settled”—that is, when a contract expires, the bet will be settled with actual Bitcoin. In contrast, the CME Group’s contracts are settled in cash; the traders never actually deal with the digital currency. 

Crucial to Bakkt’s setup is its Bitcoin “warehouse,” which stores customers’ digital coins. In fact, the launch’s delay was in large part due to a drawn-out discussion between ICE and the CFTC about how best to do this. Crypto-assets pose unique challenges because ownership is tied to cryptographic keys, and transactions are irreversible.

Why it matters: When ICE revealed its plans for Bakkt in August of 2018, it announced partnerships with Starbucks and Microsoft, among others, and promised “an integrated platform that enables consumers and institutions to buy, sell, store, and spend digital assets on a seamless global network.” And it stressed that the platform would be regulated and transparent.

Bakkt wants to make mainstream institutions less skeptical of digital assets. And it is betting that this will open the door to a much larger future marketplace for them—one that serves consumers in addition to financial institutions. To that end, getting the CFTC’s blessing for its custody service is just as important as the new futures contracts.

Keep up with the fast-moving and sometimes baffling world of cryptocurrencies and blockchains with our weekly newsletter Chain Letter. Subscribe here. It’s free!

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