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Institutional Investors Excited by Bitcoin, but not Ready to Get Hands Dirty

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The rise in interest for Bitcoin and even other cryptocurrencies in the institutional trading market has been staggering in the past few years. Ever since the coin burst onto the mainstream media front with its 2017 rally, so have investors been mulling its potential over. 

More so, in the last few years, there has been a further normalizing and legitimizing of the digital asset which has made it far more amenable to institutional investors who are excited to be a part of the industry which offers, among other things, high volatility and chances for profit. 

Additionally, the growth of institutional investor-made products in the cryptocurrency space has further greased the entry to this new market with not only some of the world’s largest exchanges offering futures trading — for example — but some well known trading houses, like CME and even Bakkt. 

However, the evidence still suggests that institutional investors, though curious and keen to trade on the market, are still wary of the asset itself and would prefer to be paid out in cash, rather than Bitcoin. 

Chicago Mercantile Exchange’s, or CME, global head of equity index and alternative investment products, Tim McCourt, said traders prefer cash-settled Bitcoin trading over products backed by physical Bitcoin — a true blow for what Bakkt is trying to achieve. 

A clear preference

CME has seen major success with its cash-settled Bitcoin futures contracts, even seeing overwhelming demand that led to the introduction of futures options.

“So far, clients have expressed a clear preference and priority for a cash-settled product,” McCourt told Cointelegraph. With the cash-backed CME Bitcoin futures product, customers can trade Bitcoin’s price action without owning the asset itself, McCourt explained, adding:

CME’s cash settlement mechanism is based on prices determined on several BTC exchanges, in much the same way as the S&P 500 settlement mechanism is based on prices determined at centralized auction markets.”

This does not bode well for a new offering in the space which many thought would be the missing link between crypto investors and institutional investors — that of Bakkt. 

Bakkt, backed by the Intercontinental Exchange, the parent company of the New York Stock Exchange, launched its futures trading platform but the uptake has been rather meek. The Bakkt option sees the contracts paid out in Bitcoin, which is not as welcomed yet by institutional investors  

Darryn Pollock
Darryn has been interested in the blockchain and cryptocurrency space since he heard about Bitcoin in 2015. He then decided to use his journalism degree to report on this fascinating fintech space in 2016, and has not looked back since.

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