Last week, Bitcoin futures exchange Bakkt announced that it would be launching a consumer app for cryptocurrency purchases by July 2020, with Starbucks will be its first launch partner. Traditional payment platforms are able to handle more transactions per second relative to public blockchains such as Bitcoin (BTC). Bakkt found a solution to this limitation by enabling customers to able to spend their BTC balance on coffee, via the app, without making direct blockchain payments from the person to the store. Rather the exchange will convert digital assets like BTC into US dollars, which can be used at Starbucks.” So far, Bakkt has only focused on BTC, but with the upcoming consumer app, it appears that it will branch out to other crypto currencies as well.
While this doesn’t necessarily create widespread “circulation” for BTC and other crypto, a key qualification for something to be considered a legitimate currency, it’s certainly a step in the right direction since Starbucks is the largest coffee chain in the world, owning almost 40% of the U.S. coffee market, and boasting more than 30,000 stores across the globe.
Along with enabling payments, Bakkt was originally launched as the latest futures market for institutional trading of BTC (the first to provide physically-backed contracts in the US), beginning operations in September 2019 . Bakkt’s futures trading volume recently hit an all-time high of $ 10.3 million on October 25, 2019, it has been holding up consistently since then. The volume of Bakkt already showing signs of a noticeable increase less than three months after its launch suggests that BTC as a store of value is appealing to accredited and institutional investors.
Apart from the trading volume, Bakkt’s total Open Interest reached a new all-time high of over $1 million. Open Interest (OI) represents number of perpetual futures contracts in existence, serving as a useful proxy for the amount of leverage in the market. According to Bloomberg, regulated futures trading volume and OI have followed Moore’s law, doubling every 18 months, following BTC futures exchange launches from CBOE, CME, and LedgerX. Although open interest is only 0.1% of total BTC supply, even small numbers attached to exponential growth rates are worth noticing. Delphi Digital’s latest report suggested that total OI for BTC repeatedly hit $1 billion, consequently resulting in the development of a new trading strategy.
Futures trading has grown from almost nothing to about 50% of spot trading, according to data from 13 top exchanges. It has reduced both actual and implied volatility, increased liquidity, broadened the investor base, improved portfolio management and soothed regulatory concerns. Additionally, futures trading seems dominated by solidly capitalized crypto entities―miners, dealers, venture investors, issuers, lenders, businesses―managing portfolio exposures. This adds a stabilizing force to historically volatile crypto markets.
In 2019 all the major crypto exchanges are offering futures trading along with crypto borrowing and lending. It’s now easy for any crypto owner to earn interest―usually around 10%, very attractive for inflation-proof currencies―on their holdings, as well as to make leveraged bets for or against crypto for future delivery.
Blockchain technologies continue to revolutionize FinTech and even traditional banking models as well. Fnality, a London-based company is banking on blockchain technology to usher in an era of digital financial markets, infrastructure, and wholesale banking.
Backed by $63.2 million in fresh funding from a consortium of financial institutions, including some of the world’s most important banks: Banco Santander, BNY Mellon, Barclays, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, Mitsubishi UFJ Financial Group Inc., Mizuho Bank, Ltd, Nasdaq, Sumitomo Mitsui Banking Corporation, State Street Corporation, and UBS, Fnality will offer the Utility Settlement Coin (USC). Notably, the USC will be fully backed by cash collateral held in accounts at central banks around the world. To start, the USC will represent five different currencies: U.S. dollar, euro, UK pound sterling, Japanese yen and Canadian dollar. The cash collateral ensures that the value of the USC remains stable, while the Fnality platform enables interoperability through its connection to any blockchain network or legacy system.
Much like JPM Coin, JP Morgan’s stablecoin that MRP covered back in April, Forbes writes the USC will allow banking participants to engage in exchange for value transactions, to include cross-currency transactions, without many of the traditional intermediaries and their associated costs. Banks will be able to clear and settle transactions virtually instantaneously, improving efficiency, and reducing cost and risk.
Fnality’s complex roadmap will see things begin to come to fruition in 2020 with the first products being simple payments. Then, it would move to more complex currency swaps, for example, as in classic foreign exchange, or involving some kind of security, formalized as delivery versus payment (DvP), meaning both sides of the trade are completed simultaneously.
While these developments have been exciting, Western institutions have likely begun looking over their shoulders to the East, where China appears to have re-ignited their crypto ambitions following the Chinese government’s 2017 blanket ban on initial coin offerings (ICOs) and centralized crypto exchanges.
Following Chinese President Xi Jinping’s speech last month, embracing blockchain technology and calling on his country to advance development in the field, the People’s Bank of China expressed concern about the impact that a cryptocurrency outside of its control might have on the economy and the financial system. That’s one reason it’s hard at work on its own digital currency, so that China won’t be forced to adopt a technology developed abroad.
After China Merchant Bank recently invested in the crypto wallet platform BitPie, one of the longest-serving BTC wallet platforms in China, speculation surrounding leaked Chinese state licenses for cryptocurrency trading services started spreading online. The license in question seems to be for a digital asset trading service based in Guangdong. While the licenses have not been independently verified yet, Guangdong is the province of Shenzhen, the so-called ‘Silicon Valley’ of China. Millions of blockchain-based invoices have been sent out this year as part of an experiment in the city which now seems to be state policy.
Blockchain and cryptocurrencies have come a long way from the Bitcoin bubble of 2017. While many pundits proclaimed the death of crypto in the months and years following the subsequent crash that sent BTC spot prices as low as $3000, down from a peak of almost $20,000, new projects and an injection of optimism has not only seen BTC spike almost 140% year to date, but the entire market cap for cryptocurrencies break back above $250 billion.
Investors can gain exposure to blockchain via the Amplify Transformational Data Sharing ETF (BLOK) and First Trust Indxx Innovative Transaction & Process ETF (LEGR). Other assets related to the blockchain include ETFMG Prime Mobile Payments ETF (IPAY) and Bitcoin (BTC).
For more of MRP’s crypto coverage see previous articles below:
DIBs September 12, 2019:
Central Banks are Now Issuing Cryptocurrencies. Is this the Tipping Point?
DIBS June 19, 2019:
Facebook’s Calibra Could Compound Mainstream Crypto Adoption