China Say Yes to Blockchain

But Is That Good for the Cryptoeconomy?

The biggest news story of the week is China’s about-face on blockchain technology. Now, China is in favor of its use and the application of the technology in a digital yuan.

If you had asked people 2 weeks ago what they thought China would do about Bitcoin and blockchain, the most common answer you would have heard was either an outright ban on Bitcoin or possibly a ban on Bitcoin mining. China’s National Development and Reform Commission (NDRC) had listed bitcoin mining as an industry that should be phased out of the country in a study 6 months ago.

And usually something ‘to be phased out’ in China means a ban is coming. And now, Coindesk reports that idea has been scrapped completely.

Why?

China wants a digital yuan. And they want it before Facebook’s Libra comes out. Decrypt states it even more simply, China wants its digital currency ‘partially as a means of shutting FB Libra out’.

How China Might Use Blockchain

China will use blockchain for

  • Issuing a digital yuan

  • Smart city technology

  • Identification

  • Financial surveillance

  • Authentication & provenance for Chinese high-end products

Blockchain has lots of interesting features that those of us in the cryptoeconomy like including:

  • Distributed network- the network has many nodes all over the world

  • Decentralized- no one person or group controls it and no central point of failure

  • Immutable- once a transaction is added into a block that’s confirmed, the information in that block can’t be changed

  • Cryptography for security- the cryptography secures the network

The People’s Bank of China (PBoC) says it wants to issue a digital yuan for use in payments and as cash. They say in this Coindesk quote that unlike Bitcoin, the digital yuan will be ‘a centralized legal digital currency’.

But here’s the thing. China is not open and permissionless like good blockchains like Bitcoin and Litecoin are. China is very closed and you do nothing without permission over there.

Take 2 of our 4 features of blockchains above, decentralization and immutability. The Chinese government can take these things and use them against their people. First of all, we know it won’t be decentralized. They have said it will run as a top-down system and we know who the top is. As for immutability, this means access to gobs and gobs of Chinese citizen data that can be used in any number of sinister ways. As the central figure running the blockchain that issues the digital yuan, they would have access to every wallet (including the ability to shut wallets down) and every transaction that goes across that network.

For less than that coffee in your hands, you can get real news without the nonsense delivered to you each week.

There’s little doubt that blockchain can and will be used for increasing mass surveillance of its citizens. The Decrypt article discusses Chinese automaker Wianxiang and their investment in smart city technology with blockchains as a way to track residents’ data.

China will also use blockchain as identification. Decrypt reports that this is already happening. Data sharing between cities and having multiple smart cities connecting to each other are all part of the surveillance plan.

Lastly, China has its own high-end products and issues with counterfeiting. We can expect that they will use blockchain tech for provenance like the diamond industry does and for authentication.

Here’s a good take on the problems this could cause for the citizens

What Does This Mean for Bitcoin?

Many people think there are 5 countries that can have a big influence on Bitcoin. Those 5 are the US, the UK, China, Japan, and South Korea. The actions and statements of these 5 governments could impact Bitcoin now and in the future. South Korea already has a partial ban on Bitcoin and that’s only increased trading activity there. China is the biggest market for Bitcoin. As much as those of us in the cryptoeconomy don’t want to admit it, what they say and do matters. And now China is saying blockchain but not Bitcoin. There are no bans on Bitcoin but it’s clear they are interested in using blockchain tech for their own specific purposes. The idea of independent, public cryptocurrencies that are not the CNY is NOT one of those purposes.

Many of us have been saying that Libra is good for Bitcoin because after trying the imitator, they will want the real thing. After all, Libra is centralized, not a real blockchain, and no expectation of privacy at all.

Is the same true for China? Maybe. China’s overall closed society will make the transition from their tech to real cryptocurrencies more difficult. Yet, many Chinese already own Bitcoin so maybe it’s a moot point.

What do you think?

More on the Repo Market

Because Government Management of Currencies Sucks

Every week in the cryptoeconomy is filled with news. Yet, the biggest story that no one is talking about is still the repo market. It affects the US economy, the dollar, and cryptocurrencies like Bitcoin. Did you read Part 1? We went into the structure of the repo market and why it’s important last week. Go ahead and check that out first. I’ll still be here with Part 2 when you’re done.

In other news, I found one interesting piece on the state of digital lending from crypto lender and OTC trader Genesis Capital

The report is a good primer on what’s going on with crypto-based lending 2.0 now that the first generation led by BTCJam (defunct), Loanbase (defunct), and Bitbond (active and growing) is done. My first interactions with Bitcoin back in 2014 were about Bitcoin lending 1.0 so I’ve always been interested in Bitcoin as an asset to borrow against. The report is free and it’s a good read about how the need for liquidity without selling BTC is in high demand and growing.

And now back to the Repo Market.

New in the Repo Market This Week

In last week’s article, we discussed how the daily intervention in the market from the Fed is now $45 billion with potential temporary increases allowed up to $120 billion. What started as a spike in the repo rate now includes daily pumps of liquidity into the system by the Fed.

According to Pierre Ortlieb, an economist at OMFIF, the days of ‘great moderation’ in the 1990s and early 2000s were a time when the Fed kept its balance sheet in balance by maintaining the amount of USD in circulation (a liability) in line with the number of assets the Fed had on the books.

Now that’s no longer true and it’s only getting worse.

Since the Great Recession, the Fed has stepped in with lots of overnight lending, Repos, and reverse Repos to fill up the liquidity on the liability side of the Fed balance sheet for all the assets (mostly T-Bills) that the Fed buys.

Balance sheet assets during the Recession were around $900 billion and today it’s 5X that amount at almost $4.5 trillion. Just 11 years later. So it’s not a question of whether the Fed should be printing more money to get the currency circulation figure higher. They shouldn’t. If anything, both the assets and liabilities need to be reduced to more manageable levels. But that won’t be happening.

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Almost half or ~$2.25 trillion is the amount of currency in circulation and the other half is now the Fed’s role as liquidity provider and overnight lender. These ‘non-reserve’ liabilities are growing and reserve assets, which are vital for the overall health of the US economy and markets, are shrinking. Currency circulation is different than M1 money supply. M1 is around $4 trillion.

Jeffrey Snider of Alhambra Partners sees a similarly difficult road ahead for the Fed and the USD. Here’s his short thread on Twitter describing it (FOMC is Federal Reserve Open Market Committee, the ones who decide on Fed interest rates through market purchases and sales of securities).

This Alhambra article is a good read with a little bit of an inside baseball feel to how the Fed acts the way it does. The most telling chart here is how regardless of how you look at the US economy, it still has not recovered to where we were beforehand.

The baseline growth figure of around 3% (the dotted line) shows that even with QE (Quantitative Easing) to print more USD and put it out into the market the growth numbers STILL fall short. This chart also shows how reserve balances are dropping as mentioned earlier.

Alhambra says there is zero upside risk now and lots of downside risk with limited options for the Fed when the next recession hits. Could US interest rates go negative like they have for most of Western Europe? Maybe.

Do you like real, actionable information for your cryptoeconomy investment decisions like this? For less than $2 each week, you can get this right into your mailbox.

Patrick Carvalho of the New Zealand Initiative asks one of the important questions. ‘Some market analysts are already questioning how long the Fed can sustain its money market interventions by short-term bond purchases only before moving to a wider range of Treasury maturities’. We keep hearing about a record expansion yet the Fed can’t take its foot off the gas to providing cheaper credit overnight (Repo) even with how great things are? How great is it really if the Fed must continue to prime the pump?

Carvalho thinks longer-term bond purchases are coming too. These operational techniques by the Fed to keep markets cheap and liquid are usually some of the tools used during a recession and we aren’t even in one yet. These leave fewer options to help manage the economy through the next recession when it comes.

Fed IOER is Too High

The Fed has a rate it pays banks that keep extra reserves on deposit there. These amounts are more than what’s required based on the Liquidity Coverage Rule. This Interest on Excess Reserves (IOER) is currently 1.8%. It’s a great deal for banks and banks don’t have to subject their funds to the Repo market or any risk if they can earn 1.8% just leaving their cash at the Fed. So that’s what they do.

This is another part of the Repo and market liquidity issue. Business Insider does a good job describing this activity.

While the Fed has not changed anything, if this need to provide liquidity for the Repo market continues into 2020, there’s a good chance the Fed will reduce the IOER to induce banks to lend to other banks and dealers in the Repo market.

Money printing will continue, growth will slow, and inflation will become an issue. It may not be today but it will happen.

Bitcoin’s money printing

Thanks to the algorithms Bitcoin uses, we already know exactly how many Bitcoins will be produced and what the inflation will look like. It’s the basis of quant analyst Plan B’s Stock to Flow analysis that I like and mention here often.

Bitcoin doesn’t have a government issuer. Bitcoin doesn’t need government intervention. Is that a guarantee Bitcoin will be successful? No, of course not. But Bitcoin needs to be part of your plan if you believe that governments are not capable of managing their currencies responsibly. And I believe that.

What do you think?

I also think some of Bitcoin’s value and growth will come not only from Bitcoin becoming more valuable. Also, like gold, the USD will become less valuable thanks to inflation and money printing. Bitcoin could have the same value 5 years from now that it has today. Yet instead of being $9,000 it could be $15,000 or more at least in part because it will take more of the future cheap dollars to buy a $9,000 Bitcoin in today’s dollars.

Bitcoin recently minted and released it’s 18 millionth coin out of a possible 21 million. Until May 2020, the current block reward is 12.5 BTC every 10 minutes or 1800 BTC per day. Annually that’s 648,000 BTC giving us an inflation rate of (648,000/18 million) of 3.6%. This is pretty low and it’s getting lower.

May is a little more than 6 months from now but the block reward will cut in half then to 6.25 BTC every 10 minutes or 324,000 BTC per year. Adding an additional 6 months of Bitcoin produced at the current block reward (12.5) would mean another 324,000 BTC or a total of 18,324,000. The inflation rate then will be (324,000/18,324,000) 1.76%. 1.76% is below the USD or any other government-issued currency’s printing rate for every currency on Earth. The scarcity and stock to flow models support an increase in Bitcoin’s value relative to all gov’t-issued currencies but we will need to see how that plays out over time. If that happens AND Bitcoin’s intrinsic value grows too, then you will see a high 5 or 6 figure Bitcoin price.

Do you believe the USD or EUR or CNY is being managed responsibly by those governments? What alternatives do you see besides Bitcoin and other cryptocurrencies if the answer is No?

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The Repo Market & Bitcoin

Why This Misunderstood Market Could be a Bullish Sign for Bitcoin

Today, I am taking a page from my regular everyday blog P2PLendingExpert.com, which I’ve had to write about p2p lending/marketplace lending and cryptocurrencies since 1993.

Of all the most interesting things to happen this week, including the Libra hearings in Congress, I think the most interesting news in the cryptoeconomy is about what’s been happening in the repo market. I wrote this piece originally for my blog and I’m sharing it here.

Here’s the link to the original story: The Repo Market & Bitcoin

And here’s the reprint below:

The US Repo market has a big liquidity problem. People seem to think this is a good pro-Bitcoin/crypto argument but is it? Let's talk about what's going on and why. This is an important market for the USD to stay stable here and around the world.

What is the Repo Market?

Repo stands for repurchase so the Repo market is a market of repurchase agreements, usually between banks. Bloomberg did a nice primer last month on the Repo market that I'll be using liberally here. It's a good read, go check it out. The Wall Street Journal has a great intro video on the Repo market too. Are you following me on Twitter yet?

Most Repo agreements are overnight loans of cash or short term government securities so banks can maintain their required reserve liquidity requirements. Even with fractional reserve banking, a bank must still keep a certain amount of cash or liquid assets available at all times. When they risk running short of the minimum requirement, they go to the Repo market for a short term fix.

Often banks lend to other banks OR mutual funds, hedge funds and other institutions sitting on cash will offer it up in the Repo market as a way to earn a little interest on that money while waiting for their next investment opportunity or order for redemptions.

Interest rates are very low for this market since many of the loans are overnight with the cash returned the next day. Most of the time repo rates are under 3%. The Federal Reserve has put in a price floor ensuring a minimum interest rate in the repo market by stepping in to do repo transactions. But then, in September, something weird happened. Check out this chart of repo rates from Trading Economics.

Notice the spike of up to 6.94% in September. What happened?

A lack of dollars in the market for the securities and other collateral people put into the repo market is what happened. The result with less cash meant the interest rates went up. The Federal Reserve then promised to inject $30 billion per day to increase liquidity in the market for 4 weeks. Now that's even higher. Lawrence McDonald, the author of the Bear Traps Report, shows the Fed's activity in the repo market in this tweet.

The Sept 19th announcement was a permanent (or 'term') Fed repo financing facility of $30 billion and a temporary additional facility increasing the total facility size to $75 billion. Then, instead of only 4 weeks of this, it was extended to 8 weeks and now the permanent term facility is up to $45 billion daily with a total facility size of $120 billion.

So there is a liquidity problem and the repo market is being propped up by the Fed.

What is Really Going On?

Travis Kling of the Ikigai Fund describes it best with this tweet.

The statement talks about money market pressures. This ZeroHedge article talks about how this 'not QE (Quantitative Easing or money printing by the Fed)' really is money printing to prop up the market.

The WSJ video, which I encourage you to watch called the lenders Karen and the borrowers Mark. Karen was unwilling to lend her cash at the typical market rate until the Fed intervened. The video talks about 2 financial deadlines that could by why this happened:

  1. Sept 16th was the deadline for banks to submit their quarterly tax payments. This means the banks would need cash to pay that out and maintain their reserve requirements. It also means banks that would lend in the repo market didn't have the funds to do so because of this obligation.

  2. The same day, Sept 16th is when $78 billion in Treasury securities were supposed to settle. That's more money taken out of the cash market because it's been converted into Gov't securities instead.

Others are blaming a rule put in since the financial crisis called the Liquidity Coverage Rule or LCR. This rule, different than the required reserves a bank must maintain, requires banks to hold at least some funds at the Fed at ALL times. The Fed believes that this extra cash on hand will help prevent a huge liquidity crisis when something bad happens.

The Fed does NOT want to get rid of this rule. They believe it's important. So important, Fed Chairman Jerome Powell said he would rather the Fed step in to the market and provide some of this liquidity itself if liquidity is an issue instead of getting rid of the LCR. And based on the tweets above, you can see that's what they did. The Fed has now promised to purchase T Bills to give the market liquidity until AT LEAST Q2 2020, based on the WSJ video and their reporting.

One of the best analysts of the repo market is also one of the best legal minds in the cryptoeconomy, Caitlin Long, who is a must follow if you own any cryptocurrency and is one of my 10 Accounts on CryptoTwitter You Need to Follow. She states in plainly that QE4 by the Fed just started.

The demand for these TBills is so high, the Fed purchase for 4x oversubscribed. In other words, some institutions really needed the liquidity badly and wanted to sell their TBills to the Fed.

Is this Good for Bitcoin?

I'll be the first to say that these explanations offered about why this rate spike happened in the opaque but important Repo market are mostly a bunch of crap. There are big structural liquidity problems in the USD market. The problems are so big that even when KNOWN payments are coming due there is still an issue. We are only just getting exposed to those market issues now.

We are supposed to be in a huge economic expansion where everything's awesome, yet there's a shortage of money? Again? The central bank balance sheet is growing, again, meaning more Fed intervention and more printing of USD. Here's the trend for the last year.

How do you like that Spanish language banner ad?

One of the biggest pro-Bitcoin arguments is about seigniorage, or the right to print money. Everyone alive today has only seen state-issued currencies until Bitcoin came along. But it wasn't always this way. Gold was a standard for money. The Roman Catholic Church made lots of banking and currency advancements too. Yet only Bitcoin (or maybe another cryptocurrency that doesn't rhyme with Zebra) has the opportunity to be money that people can easily access and use that's not issued by a government. Bitcoin is based on math.

Until recently, I didn't think that Bitcoin would or even could become a global reserve currency or even as part of a basket of currencies once complete USD domination of global currencies fades. And that day of the USD fading is closer than most people think it is. But now I do think that Bitcoin, along with the USD, EUR and maybe the CNY will become part of a basket of currencies where one currency (the USD) no longer completely dominates everything.

Now if you believe this argument as I do now, then you need to be stacking those sats (stacking those satoshis) and buying more at whatever intervals, amounts, and risk levels you can handle because at the current price of $7474 we have a market value of $134 billion for Bitcoin (courtesy of Messari.io).

Bitcoin can't become a part of a reserve basket without doing at least a 10x from to have a market value of $1 trillion or more. There are $10 trillion USD in existence and there's $1 trillion (in USD) worth of Euros in circulation today. Both the ECB and the Fed are printing more money so those numbers will only continue to grow. It's not silly to think that Bitcoin would be worth at least $1 trillion to be considered for partial reserve currency status meaning a price of $75,000 each. When the next halving occurs in the late Spring, the inflation rate of the USD and EUR will be higher than the inflation rate of Bitcoin, even with blocks of new coins released every 10 minutes.

But I am not a prognosticator on price. My point is this liquidity issue in the repo market when everything is still in economic expansion mode only shows that governments will continue to mismanage and debase their currencies. Bitcoin is a hedge against that and it gets the government out of your money.

And that is why the Repo market, which is supposed to work smoothly in the background of the US financial statement but currently is not working so well is a bullish sign for Bitcoin.

SEC Rejects Bitwise ETF

SEC says No, but is it no, or just not yet?

This week’s biggest news is that the decision came down on the Bitwise ETF from the SEC. The answer is No. We’ve given the Bitwise ETF lots of coverage here and believe an ETF will happen. Their proposal included:

  • Lots of excellent research including the Real 10 of exchange volume and how much exchange volume is fake

  • Unlike other proposals, they chose to take it all the way to a decision

  • They made some excellent arguments about how price discovery is improving. Bitwise believes manipulation of the market is less likely now and over time

Here is the coverage from the big crypto information sites like The Block, Coindesk, and Cointelegraph.

The Block’s piece goes into the 2 main reasons they believe the ETF wasn’t approved: manipulation concerns and lack of ‘market surveillance sharing agreements’. Manipulation is easy to understand. The SEC did not buy that the Real 10 comprises the real Bitcoin market. They told Bitwise if 95% of the volume is fake, how can we be sure the other 5% is real? The market surveillance sharing agreements really are about cooperation and monitoring of markets for illegal trading. The ETF and the largest crypto exchanges like Bitstamp, Coinbase and Binance would not/do not have such agreements. The reality is that the 2 items are related as selling and buying patterns on certain exchanges could affect the price of both Bitcoin and of a new Bitcoin ETF. This is a good article by @FintechFrank and you should read it.

The Coindesk piece focuses exclusively on the lack of mechanisms to stop price manipulation, stating that NYSE ARCA did not meet the legal requirements against manipulation. NYSE ARCA was Bitwise’s partner in the proposal for the ETF.

The CoinTelegraph piece focuses on the manipulation as well and includes the SEC quote (all 3 pieces did) with the exact language of the rejection.

"Rather, the Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be 'designed to prevent fraudulent and manipulative acts and practices.'" 

The SEC Statement

The SEC released a 112-page statement along with the rejection. We found some interesting tidbits in the statement. You already know the reason why it was rejected but Page 3 cites a positive for the cryptoeconomy.

…its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment

This is a good starting point of at least seeing that there’s value in the technology and investments in digital assets. Hey, you have to crawl before you can walk, right?

The SEC has a concern about whether Bitcoin is a “significant market” and “market of significant size” to uphold an ETF while preventing market manipulation (Disapproval order, p.5).

They get more specific about the significant size argument on pages 11-12 where they discuss the CME Bitcoin Futures market.

The Commission then examines whether the record supports the Sponsor’s assertion that the bitcoin futures market, as represented by bitcoin futures listed and traded on the Chicago Mercantile Exchange (“CME”), is a significant, regulated market, such that a surveillance sharing agreement with that market would provide a necessary deterrent to manipulation because it would facilitate the availability of information needed to fully investigate a manipulation if it were to occur. See infra Section III.B.3. The Commission addresses the Sponsor’s comparison of the size of the bitcoin futures and spot markets and the Sponsor’s representations about the correlation of prices between these markets, as well as whether the record establishes that there is a reasonable likelihood that a person attempting to manipulate the proposed ETP would also have to trade on the bitcoin futures market to manipulate the proposed ETP. The Commission concludes that—because NYSE Arca has not demonstrated (emphasis mine) that the bitcoin futures market is “significant,” as the Commission has interpreted that term in this context.

So the Merc’s Futures contract is not big enough to be ‘significant’. So having a surveillance sharing agreement with the CME is not relevant as a way to stop price manipulation.

One argument that we’ve made here that the SEC agreed with us is about the complete exclusion of some markets especially the OTC market (p.46). Here they spell out the volume claim (p.66).

NYSE Arca and the Sponsor have not provided sufficient data to substantiate the Sponsor’s claims that it has identified the ten platforms that have “real” volume, as distinguished from those platforms dominated by fake or non-economic trading

They go on to say (p. 68) that they do not believe that Bitwise found or represented the real true spot market for Bitcoin. And if they haven’t captured the spot market, then they can’t protect the spot market from manipulation.

Lastly, in pages 82-85, the SEC mentions Bitfinex. They discuss how Bitfinex does enough real volume to be included in the Bitwise Daily Price Index for the ETF, yet it was removed due to speculation about its relationship with Tether. The SEC used this ad hoc removal as evidence that Bitwise can’t contain market manipulation, only do something about it afterward. I’m not sure how much I agree but this is an argument Bitwise had no answer for.

The Bitwise Reaction

Bitwise is telling the world they will adjust their ETF project and refile it with the SEC ‘when appropriate’. Here is the press release with the initial reaction. They will rework it and refile it.

One of my favorite legal minds in the cryptoeconomy thinks the delay will go a little longer than people think….

Conclusion

Our thoughts from the very beginning were that the Bitwise ETF was a good attempt but probably would not pass. And that is what happened. We believe an ETF is inevitable, that it’s only a matter of time.

Some of the best and most profitable businesses in the cryptoeconomy are exchanges. As exchanges grow, improve, and new ones form with real, auditable volume, the concern about arbitrage and price discovery will go away. We also believe that the CME futures contract and the new Bakkt contract will grow in volume and institutional interest. All these things point to an eventual ETF. But for now we must wait…..

Institutions & Crypto: Repo Market & Bakkt

How the Fed's Repo Market activity affects Bitcoin and the Opening of the Bakkt Futures Contract

Bitcoin’s price is down almost 20% in the last week from $10,200 to just over $8,000 today.

It’s no surprise that many of the headlines are about this quick decline. It’s great fodder for the one zillionth time hearing that ‘Bitcoin is Dead’.

Price is only one indicator of activity and health in Bitcoin. The institutional markets had a busy week.

Federal Reserve Has to Inject Billions in Liquidity into the US Banking system

One of the big events of the week is the liquidity crunch in the Federal Reserve Repo (Bank Repurchase) market.

The Repo market is where banks lend overnight to other banks that need liquidity to maintain their reserve requirements. As a fractional reserve system, a bank is required to keep only a small part of its assets in reserves for liquidity or needs like customer withdrawals. The collateral is US Government Securities, Treasuries, which people have called a risk-free asset in finance for decades.

Often they lend each other funds overnight at low-interest rates since the banks have the ‘risk-free’ assets, just not the liquid cash. But this week, the repo lending rate jumped up from an average of 2.2% to nearly 6% in one day. The Federal Reserve had to add $75 billion of daily liquidity into the banking system for the last week.

Some good quality initial reporting of this comes from:

The Business Insider piece describes that this kind of intervention is the first time in 10 years that the Fed has had to inject money into the repo market. BI says the Fed has it in their schedule to continue the daily cash injections until October 10.

The NYT piece says this is ‘not a catastrophe in the offing’. It does a good job explaining how critical the repo market is in maintaining interest rate policy. They go on to say that this time is less risky because bonds are seen as low risk based on the low rates bonds are currently paying to fixed income investors.

These 3 articles do some pretty good straight reporting on it with some opinion (NYT) mixed in. Let’s see where Bitcoin and cryptocurrency fit into this.

Some Deeper Analysis & Affect on Crypto

One of my favorite people to follow in crypto, Caitlin Long, wrote a great piece for Forbes on why this is such a big problem.

She describes how this helps us see that US Treasuries are not really the risk-free asset people think it is. Caitlin goes on to say that for every US Treasury in the market, 3 different people think they own it, while only 1 does.

Curious how that happens? Read the article. It describes hypothecation and how GAAP accounting standards don’t account for this. The article also describes how shockingly fragile the US monetary system is and how Bitcoin is anti-fragile in comparison. It’s a real wakeup call to those that should pay attention to our financial system but don’t.

Bakkt Contract for Physical Bitcoin Opens

The big story for institutions in Bitcoin is the opening of the Bakkt Bitcoin Futures contract.

Here’s CNN’s coverage of the launch

The Chicago Merc (CME) already has a futures contract that gets good volume. The difference is the CME futures contract settles for US Dollars. This structure is a convenience to institutions, an understandable policy to generate interest. Bakkt’s futures contract settles in Bitcoin. Those who hold the contract to its monthly expiration will have to buy or sell Bitcoin to settle the contract. This is a big deal to get institutions to adopt Bitcoin.

Bakkt calls it a milestone for the industry since now regulated markets can accept Bitcoin for purchase and sale. Check out their tweet and Medium post about it.

This article calls their futures contract a ‘fully regulated infrastructure for Bitcoin’. I wouldn’t go that far but it is definitely a big advancement. It’s good for Bitcoiners and for institutions interested in Bitcoin as an asset class for investment.

Here’s the first-day volume

Kruger is quick to say in this thread that this low volume doesn’t make Bakkt a failure, just something to watch to see how adoption goes or doesn’t, for this contract.

One of the optimists on Bakkt

CoinTelegraph describes why this is a big deal (I think it is too)

And since next year we have a halving of the block reward, this take is interesting

We believe this is only good for Bitcoin. Either the market adopts this futures contract or it doesn’t and a better one comes along soon after.

What do you think about this new way to acquire Bitcoin through a futures contract?

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