CFTC Is Closely Examining Bakkt’s Bitcoin Futures Contract

On the 19th of March, Commodity Futures Trading Commission, the CFTC, announced that it is working diligently on its review of cryptocurrency related applications including Bakkt. The institutional trading platform, Bakkt, has had its application with the CFTC since last year. From the latest comment by the CFTC, things are going to change soon as they will soon reach a verdict.

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Dan Berkovitz, the commissioner of the CFTC, was recently asked about the commission’s review of Bakkt. In reply, he said that even if there have been many delays, the CFTC’s commitment to traders is still a priority. He said that the commission is working hard to make sure that cryptocurrency-related products get the review they need. In his words:

“We have a very interactive process with all the entities that come before us and [are] working diligently with all the applicants to process their applications and get their products on the market. But we need to ensure that a crypto product, just like any other product that’s traded on our markets, meets all the standards.”

After answering this question, Berkovitz was asked if the CFTC is giving any special treatment to Bakkt’s Bitcoin Futures application, he acknowledged that there has been a lot of pressure on them due to numerous delays and they are working on putting things in place and giving the required approval. He continued:

“All of the applications before us we’re working very hard on with the applicants, including that one.”

A while ago, the Wall Street Journal reported that one of the reasons why the application for Bakkt hasn’t been approved or disapproved is that there is a little dispute surrounding how the institutional trading platform intends to offer its Bitcoin Futures contract. According to the Wall Street Journal, a spokesperson at Intercontinental Exchange said that they are working closely with regulators to make it work. In his words:

“We are working through the regulatory review process and are looking forward to updating the market soon.”

The last time the launch of Bakkt was moved forward due to a lack of regulatory approval was in December 2019. However, it was pushed forward again. Hopefully, it’s going to be launched by the second quarter of this year assuming the CFTC gives it the green light. Right now, it’s difficult to determine whether the CFTC will approve Bitcoin futures or not. Many of the concerns that led them to deny previous applications are yet to be addressed. Since the CFTC’s commitment to traders is still a priority, it’s important that the cryptocurrency community braces up for a possible denial.

What is the Commodity Futures Trading Commission – CFTC

The Commodity Futures Trading Commission (CFTC) is an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The Commodity Futures Trading Commission regulates the commodity futures and options markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices and fraud.

The CFTC has five committees, each headed by a commissioner who is appointed by the president and approved by the Senate. These five committees focus on agriculture, global markets, energy and environmental markets, technology, and cooperation between the CFTC and SEC. The committees are populated by individuals who represent the interests of specific industries, traders, futures exchanges, commodities exchanges, consumers and the environment.

The Commodity Exchange Act (CEA) regulates the trading of commodity futures in the United States. Passed in 1936 and amended several times since, the CEA establishes the statutory framework under which the CFTC operates. Under this Act, the CFTC has authority to establish regulations that are published in Title 17, Chapter I, of the Code of Federal Regulations (CFR).

New Challenges for the CFTC

The CFTC is moving away from its historic role as regulator of traditional commodity products-related futures and options contracts to face new challenges in the digital age of the 21st century.

A new challenge facing the CFTC is in relation to new financial technology (FinTech) products and crypto-currencies like Bitcoin, which recently had a Bitcoin futures contract launched in late 2017 that trades with the CME Group. The CFTC says that FinTech is driving innovation in financial markets across the globe. New technologies are wide-ranging in scope, from cloud computing and algorithmic trading to distributed ledgers to artificial intelligence and machine learning to network cartography and many others. These technologies have the potential for significant or even transformational impact on CFTC-regulated markets and the agency itself. The CFTC plans to play and active role in the oversight of this emerging innovation.

The CFTC plays an important role in regulating financial markets. Without such regulation and regulators, market participants could be subjected to fraud by unscrupulous individuals and, in turn, lose faith in our capital markets. This could make capital markets ineffective at efficiently allocating financial resources to the most deserving means of production and productive economic activities to the detriment of investors, consumers and society. Time will show if the agency is up to the new challenges it faces.

Related Terms

Commodity Exchange Act (CEA)

The Commodity Exchange Act prevents and removes obstructions on interstate commerce in commodities by regulating transactions of futures exchanges.

Grain Futures Act of 1922

The Grain Futures Act of 1922 is a statute passed in 1922 by the U.S government restricting the trading of grain futures to regulated futures exchanges.

Commodity Futures Modernization Act (CFMA)

The Commodity Futures Modernization Act (CFMA), passed in 2000, updated commodity trading laws especially for nonphysical products such as derivatives.

Commodity Futures Contract

A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future.

National Futures Association – NFA

The National Futures Association is an independent, self-regulatory organization for the U.S. derivatives industry including futures, forex and OTC swaps.

Commodity Market

The commodity market is a physical or virtual marketplace for buying, selling and trading raw or primary products.

What is Bakkt?

 Cryptocurrency market has been looking to create a safe and attractive path for institutional investors to come on board for quite some time now. The interest from investors is there as the attractiveness of the crypto space cannot be denied; decentralized blockchain technology can potentially improve privacy, scalability, security issues that businesses deal with daily. Investing in such a transformative technology carries with it the potential for serious financial gains and this is something that institutions do care about as well.

Still, institutions had their reservations about the cryptocurrency space and they had them for a reason. The explosion of ICO’s in 2017 revealed that the market is full of ways to lose your money. A recent analysis by Ernst & Young showed that 86% of the tokens launched in 2017 are currently valued under their respective listing prices. Not to mention the projects that straight up scammed the investors and pulled off exit scams.

Finally and perhaps most importantly, most institutions weren’t comfortable with investing through the current lineup of centralized exchanges that are plagued with shady backgrounds and have a history of avoiding/not complying with government regulations. But these reservations might just be lifted now with the upcoming launch of Bakkt.

What is Bakkt?

Bakkt is the brainchild of an entity called Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges, clearing houses, data and listings services. Intercontinental exchange is a Fortune 500 and Fortune Future 50 company formed in the year 2000. ICE operates the exchanges, clearing houses and information services that their customers rely upon to invest, trade and manage risk across global financial and commodity markets. ICE is the parent company of the New York Stock Exchange, the world’s largest stock exchange, currently worth more than $20 trillion.

Bakkt platform will leverage Microsoft Azure cloud solutions to create an open and regulated, global ecosystem for digital assets. On this platform, investors will be able to buy, store, sell and spent crypto assets in any way they wish to do. Bringing trust, efficiency and commerce right at the doorstep of cryptocurrency, Bakkt will seek to connect the existing real world markets and merchant infrastructure to the blockchain. The platform aims to connect the entire cryptocurrency world, from the average user, over the institutional investor, to the merchant and consumer of products.

The Bakkt ecosystem will feature a federally regulated marketplace where people will be able to trade physically backed Bitcoin futures, as well as warehousing/custodian capabilities that will also comply with the appropriate government regulation. Futures trading will be don’t through ICE Clear US (ICE’s clearing house), with expected “one day delivery” for the client. Bakkt will hold the Bitcoins backing the futures contract in the ICE Digital Asset Warehouse, according to this notice. Bakkt estimates these futures will be available as early as Q1-Q2 2019, pending approval by the U.S. Commodity Futures Trading Commission.

Consumer and merchant applications will be present as well and with projects like Microsoft, Starbucks and BCG on board, there is already serious merchant interest for Bakkt. Investor interest isn’t lagging behind either, as Eagle Seven, Galaxy Digital, Horizons Ventures, Alan Howard, Pantera Capital, Protocol Ventures, and Susquehanna International Group, LLP already provided the capital for the project’s operations.

“As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearing house plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to CFTC review and approval. These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt,” described the project’s official press release.

How can Bakkt improve crypto fortunes?

Bakkt brings several positive things to the table:

Federally regulated and fully government approved exchange platform, removing the mistakes of its predecessors who launched without proper regulatory approval

Custodian service which increases the safety of investor’s funds (especially for those investors that handle large amounts of cryptocurrency)

Daily physically delivered futures contracts requiring parties to purchase Bitcoin upon the contract expiry

Robust payment infrastructure and a direct connection with merchants which will allow for increased crypto adoption and usability

Crypto-to-fiat exchanging capability, a feature that would make these digital assets much more liquid than they are now

Clients will have access to a broad range of trading and risk management applications that are available in the Bakkt ecosystem

Will Bakkt bring Bitcoin “to the moon”? or When will Bitcoin go back up?

Bakkt is an interesting and ambitious solution that has the potential to improve crypto space in many ways we described above. Liquidity, regulation, safety, stability, institutional investment, mainstream adoption are words that many a crypto enthusiast has been parroting ever since hearing about the platform. Skeptics feel that Bakkt has the potential to succeed, but point out that the hype could be wrong. The market could easily go the other way in a typical “buy the rumor, sell the news” shakeout. What we can say for sure is that Bakkt isn’t going to magically bring about the next great bull run, but it does seem like another important step towards mainstream cryptocurrency adoption and the much desired “moon”. Source: captainaltcoin

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Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.


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