New Money Pouring in Bitcoin Market: Bakkt Records over $1 Million in Open Interest
Intercontinental Exchange (ICE) launched its much anticipated physically-settled Bitcoin futures contracts in September. But all the hype around Bakkt launch came crashing when Bitcoin lost 24% of its value the same week.
Bakkt not only triggered BTC’s drop from $10,000 to about $7,600 but the platform recorded disappointing volume on its launch day (at just 72 BTC) and the opening month.
But the volume started picking up in late October when Bitcoin lost 10% of its value only to surge 42% in a span of less than 5 days.
On Oct. 24, Bakkt had a record day with $4.5 million in trading volume, which was about 5 times its average daily volume. Then another record day with 8x the average daily volume.
“Don't bet against Jeff Sprecher!”
This growth can now be seen in open interest on Bakkt Bitcoin futures contracts that surpassed $1 million.
“Bakkt slowly taking off – total open interest just crossed $1mln with volumes also ramping up quite a bit this week. Don't bet against Jeff Sprecher!,” wrote the data analytics platform Skew Markets on Nov. 3.
Bakkt slowly taking off – total open interest just crossed $1mln with volumes also ramping up a quite a bit this week.
Don't bet against Jeff Sprecher! pic.twitter.com/3f7C8czO18
— skew (@skewdotcom) November 2, 2019
Open interest is the total number of outstanding derivatives contracts that haven’t settled for an asset.
It is said to provide a more accurate picture of whether money flowing into the futures and options markets is increasing or decreasing. Increasing open interest represents new or additional money coming into the market while decreasing indicates money is flowing out of the market.
Open interest’s importance can be understood from the fact that it functioned as a potential sign of trend exhaustion and subsequent reversal in the cryptocurrency market this year, as shared by research firm Delphi Digital.
However, things are not turning out positive at Bakkt alone but also at CME. Institutional longs at CME has hit one month high. The question is we would see a breakout soon and the longs will jump over 1.5k BTC.
Institutional longs at CME – one month high
Could we see a breakout soon > 1.5k BTC? pic.twitter.com/y9SmywwVE0
— skew (@skewdotcom) November 2, 2019
Big Things Ahead
Backed by Microsoft and Starbucks, Bakkt is designed to enable institutions to seamlessly buy, sell, store, and spend digital assets.
Despite its slow launch, analysts had strong faith in Bakkt’s success, calling it an important development for the crypto market as it brings a reliable and regulated infrastructure.
Bakkt will be likely first a trickle and then a flood. The reality is that most regulated futures contracts get low adoption on day1 simply b/c not all futures brokers are ready to clear it, many ppl want to wait and see, the tickers are not even populated on risk systems, etc.
— Su Zhu (@zhusu) September 23, 2019
According to analyst and trader Luke Martin, Bakkt will not only initiate more robust BTC borrowing and lending markets to form and legitimize the asset but also ease manipulation concerns.
Just last week, Bakkt announced that it will be launching its consumer app for cryptocurrency purchases in 2020, with Starbucks as its first launch partner. Users of the app will be able to spend BTC to buy coffee at Starbucks.
“We don’t think that that that whole space will be relevant and grow unless there are real use cases and we do … think that a use case is going to be the digital transfer of value through payments,” said ICE head Jeffrey Sprecher.
Last month, the exchange also announced the launch of the first regulated bitcoin options contracts in December. The current options market, according to Sprecher is active but murky and Bakkt can act as a source of price discovery bringing more transparency to space.
Sprecher also revealed during the company's Q3 earnings call that Bakkt is in talks with “All [kinds] of financial institutions,” including major banks and brokers to explore the adoption of Bitcoin derivatives.