Wall Street is Coming to Crypto; Nasdaq’s Bitcoin Futures Explained

Forget the plunging prices, Wall Street is still thirsty for bitcoin and cryptocurrencies.

According to Bloomberg, Nasdaq will launch a trading platform for bitcoin futures contracts as early as the first quarter of 2019.

The news comes as ICE, the parent company of the New York Stock Exchange, prepares to launch its own bitcoin futures exchange called Bakkt. 

It’s a sign that institutional players and Wall Street see strong demand for bitcoin trading even amidst the 80% price drop.

What are Nasdaq Bitcoin Futures?

After hinting at the prospect late last year, Nasdaq will finally launch a platform for trading bitcoin futures contracts in early 2019.

The news was reported by Bloomberg and confirmed by Nasdaq partners, VanEck, at Coindesk’s “Consensus” conference yesterday.

The launch will be the first in a range of institutional crypto trading solutions.

What’s a Futures Contract?

A futures contract is a simple way for traders to bet on the future price of an asset, like bitcoin.

It works by agreeing to purchase the asset for a predetermined price at a specific date in the future. 

For example, I agree to buy bitcoin for $6,000 on December 22nd.

If the price of bitcoin is much higher than $6,000 on the date of expiry, I get my bitcoin at a huge discount to the market. I can then turn around and sell it at market value for a big profit.

Of course, it can work the other way too. If bitcoin has fallen far below $6,000, I’m still obligated to pay the agreed price (or I can exit the trade before the expiry date). 

Futures contracts are used by traders to make future bets on price rises (or falls), and they exist for most market assets, like oil, gold, and stock market indices.

Nasdaq Bitcoin Futures: “We Ran A Few Extra Miles With [Regulators]”

The news is a long time coming after the first whispers emerged in 2017. During that time, Nasdaq has been working closely with US regulators, the Commodities Futures Trading Commision, to tighten the screws.

VanEck’s director of digital asset strategy, Gabor Gurbacs, explained: 

“What I’d like to point out is we ran a few extra miles working with the [Commodity Futures Trading Commission] to bring about new standards for custody and surveillance.”

Nasdaq already operates a strict surveillance system on its exchange to pick up signs of manipulation such as wash trading. By integrating this into a crypto trading system, it will give institutional investors a great deal more confidence to trade and invest in bitcoin.

Settled with Bitcoin?

One thing we don’t yet know about the Nasdaq bitcoin futures is how the contracts will be settled.

The only bitcoin futures contracts on the market right now (available via CBOE and CME Group) are settled in cash. So when the futures contract expires, the trader pays (or receives) cash.

The much-hyped Bakkt futures contracts, which are slated for launch in January 2019, are unique because they are settled in bitcoin.

Nasdaq nor VanEck have confirmed how their product will operate.

Wall Street is Coming: Bakkt Launch in January 2019

The Nasdaq futures announcement comes shortly after the hype around Bakkt’s futures contracts.

Bakkt is a cryptocurrency exchange platform, backed by the parent company of the New York Stock Exchange. To put it another way, it’s a big deal.

Bakkt will also facilitate bitcoin futures contracts settled with real bitcoin.

Originally slated to launch early December, the Bakkt launch has been pushed back to January 24th, 2019. The delay was caused by the large “volume of interest.”

2019: a Big Year for Bitcoin?

The first quarter of 2019 is lining up to be huge for crypto. Bakkt is scheduled to launch in January. The Securities and Exchange Commission will make a decision on the much-anticipated bitcoin ETF proposal, and Nasdaq’s futures market will launch.

If 2018 was the year of slow, painful regulatory issues, 2019 could be the year it all comes together.

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Ben Brown

Editor, Block Explorer News

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