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Bakkt‘s cash-paid bitcoin futures were launched in December 2019 on popular demand. Physically entrenched Bitcoin futures exposed traders to the risk of holding the asset and did not exactly fly among derivatives traders.

Despite initial hurdles, the volume of cash-paid Bitcoin futures has doubled in the past six months. What is interesting is that it has maintained a consistent trading volume.

This chart is more consistent than the volume of cash-paid futures in CME, or the total at the best derivatives exchanges according to data from the skew.

Total daily volumes in the top exchanges and CME show significant declines. The most popular among the key reasons is the general perception that cash-paid futures can be manipulated fairly easily, as they pay using a formula that takes prices from some potentially low-volume third-party spot markets rather than delivering their base at maturity…

Derivatives traders keep accounts on spot and derivatives exchanges. They take long / short positions in cash-paid futures on derivatives exchanges and use wallet balances in spot markets to move the reference price up / down during clearing, and this is the value captured by derivatives exchanges and used in clearing formulas…

This manipulation is possible only because of the low liquidity in spot exchanges where the price reference is taken. After these traders receive their profits without paying cash, they resolve their positions on spot exchanges. While this manipulation is difficult to track, there is a sharp movement just before the planned settlement, and this is clearly visible on the CME chart. However, this is not clear on bitcoin futures, which are paid in cash on Bakkt.

At Bakkt, growth has been consistent for the past six months. However, Bakkt’s physically established bitcoin futures chart has a different growth trajectory.

Volume rebounded in the last week of July 2020, steadily rising to over $80 million and exceeding $100 million several times. Cash-paid futures have been more popular compared to physically established futures, with consistent growth in the former. This suggests that Bitcoin futures contracts on Bakkt have been performing consistently over the past 6 months, with the same demand consistent across the stock market.

Bakkt Bitcoin futures contracts may be the only contracts that have not been manipulated and have doubled in volume with consistent growth over the past 6 months.


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