NYSE’s ICE to Launch Cash Settled Bitcoin Futures

Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, announced this Friday plans to launch cash settled bitcoin futures this November pending approval by the Commodities and Futures Exchanges Commission (CFTC).

ICE said they are to launch a new company, named Bakkt, that will provide a one day physical bitcoin futures offering.

The company seems to have been formed in collaboration with Microsoft, Starbucks and the Boston Consulting Group (BCG).

How much money Bakkt has raised is unclear, but ICE and Microsoft has invested in the company, with a number of further investors expected, including Fortress Investment Group, Eagle Seven, Galaxy Digital, Horizons Ventures, Alan Howard, Pantera Capital, Protocol Ventures, and Susquehanna International Group, LLP.

“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant and consumer participation in digital assets by promoting greater efficiency, security and utility,” said Kelly Loeffler, CEO of Bakkt, before adding:

“We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”

While this announcement was followed by much hype, including CNBC calling it the biggest news of the year, it looks like this is little more than Coinbase, but on Wall Street.

The current traditional framework is utilized to in effect allow the buying and selling of bitcoin, with the additions of futures seemingly being added just to fall under CFTC’s regulatory oversight.

Because a one day futures is of course not a futures. It is almost spot trading. However, individuals can’t quite participate in such trading directly.

The design firstly has Bakkt, which provides the platform where you can buy and sell, the clearing of funds from buyer to seller, and the “warehouse” storage of the bitcoins which are then sent to the buyer.

Then, you have a limited number of individuals who can actually do this buying and selling, called broker dealers. Institutions then buy and sell through these broker dealers and finally there is the ordinary man or woman who buys from the institutions.

The role of Starbucks here is very unclear. Some are reporting they will start accepting bitcoin payments, while Motherboard says a Starbucks spokesperson told them “Customers will not be able to pay for Frappuccinos with bitcoin.”

The press release itself has this somewhat interesting and ambiguous statement by Maria Smith, Vice President, Partnerships and Payments for Starbucks:

“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into US dollars for use at Starbucks.

As a leader in Mobile Pay to our more than 15 million Starbucks Rewards members, Starbucks is committed to innovation for expanding payment options for our customers.”

The confusion here arises by the question of whether Starbucks is to accept bitcoin by instantly converting them into dollars, or whether Starbucks is simply one of the companies that has formed Bakkt to allow individuals to convert bitcoins into fiat, with that fiat then usable among many other places at Starbucks.

That confusion should have been cleared by a lengthy and somewhat rambling article on Fortune where they claim they spent hours talking to ICE’s CEO, but it does look like Starbucks is starting to enter this space.

Starbucks has seen its stocks drop considerably recently, so they may be looking to tap into new markets. As is ICE.

The infrastructure the latter is setting up would be useful for institutional investors but whether they can actually secure the bitcoins is a reasonable question that can’t easily be answered by just putting up a CFTC label.

It is unclear what experience they have in securing cryptocurrencies, or whether they are aware just how important decentralization can be not just as a nice thing to have, but as vital where security is concerned.

Something like Bakkt, however, already has competition and will probably have even more competition moving forward within US and outside of it, but this announcement does show that wall street is now very much moving into the crypto space.

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