In the past few weeks, Bakkt, and its physically-settled Bitcoin contracts have been gaining momentum as records on its daily trading continue to fall. The offering from Bakkt is something that has not been seen on an institutional level, and it prides itself on its stringent and meticulous attention to regulatory detail.
However, Bakkt has also been marketing itself as having been fully backed by Bitcoin for its futures contracts. It is a widely held belief, but a little bit of digging, and some reading of the FAQs, shows that to be incorrect.
The myth that Bakkt was fully backed by Bitcoin was repealed by well-known crypto commentator Alex Krüger who posted a screenshot of the Bakkt FAQs that state that the futures are leveraged, and that the margin for the Bakkt Daily and Monthly Futures is expected to be approximately 37%.
Many people took to his post to ask what the agenda was as other futures services have been running with margins, and it is clearly stated in Bakkt’s FAQs. But, to Krüger’s point, he is trying to break this myth as many appear to think that Bakkt is fully backed by Bitcoin.
And, there is a reason why this belief is held. Bakkt was supposed to be fully collateralized, or pre-funded, this was one of their selling points. It was also expressly stated so by the Bakkt CEO Kelly Loffler, who wrote an article expressing this point.
Her Medium post – “An Evolving Market” – saw the CEO stress that Bakkt would avoid margin practices by fully backing all contracts with Bitcoin. She stated:
“Specifically, with our solution, the buying and selling of Bitcoin is fully collateralized or pre-funded. As such, our new daily Bitcoin contract will not be traded on margin, use leverage or serve to create a paper claim on a real asset.”
Loeffler explained that Bakkt’s “physical delivery” of Bitcoin would make it unlike existing cash-settled futures contracts such as CME Group. She actively promoted the full backing of Bakkt – before its launch – as something to differentiate themselves from the rest of the market.
In all honesty, Bakkt is not performing any sort of dodgy practices, nor is it in danger with this percentage backing. They have been honest and stated it clearly, but the problem is Loeffler – who is close to reaching the US Senate – is using a few poor political promises.
Before the launch, she promised full backing, but after the start she quietly turned around on that fact. It is simply not a good look for a platform trying to entice institutional investors.