In the recent FIA Boca 2019 event, one of the topics discussed was the price discovery of Bitcoin. Representatives of Coinbase, ErisX, Bakkt, CME Group, and Cboe Global Markets, spoke about where the current price discovery occurred and where it would occur in the near future.
Adam White, the COO of Bakkt, began the discussion by stating that price discovery “is very fundamental” with respect to what Bakkt was bringing to the market. He went on to say that the current price discovery primarily occurs in cash markets. He added that the present market was bifurcated between traditional OTC players like Circle and Genesis, and markets like Coinbase, Gemini and Kraken. He said,
“I think those markets are really important. We wouldn’t be sitting out today if they hadn’t come about in the past five to six years. They’ve actually grown this market to one that’s meaningful and shows a lot of promise.”
White further stated that Bakkt “fundamentally believed” that price discovery was going to occur in an end-to-end regulated ecosystem, adding that Bakkt was trying to bring exactly this to the market. He said,
“Bakkt is providing the custodial services that allows ICE futures and ICE clear to trade or facilitate trading in a physically delivered product. And, we believe having that product traded on a regulated exchange for the first time is really going to be important.”
He stated that price discovery was going to switch from the cash market to the futures market, adding that Bakkt would hopefully be a “core product” for the discovery.
Further, John Deters, Head of Strategies and Multi-Asset Solutions at Cboe Global Markets, stated that the price discovery “kind of comes” from different places. He added that the platform’s Bitcoin futures product settled on another platform, Gemini, one of the leading cryptocurrency exchanges in the US. He said,
“That auction event is one of the greatest liquidity events in the global Bitcoin market at least those that are disclosed and its because the people are participating in the futures product and want to get a convergent price. So, where’s the price coming from? The futures traders or the cash traders, it’s kind of hard to say.”
Adam White stated that one of the problems that their customers have is that cash markets were “not regulated exchanges”. He added that these markets had custodial aspects of storing Bitcoin with a BitLicense or a trust, adding that they were absolutely “regulated and rightful”. He said,
“But we actually look at the matching, the center limit of the order book, those pieces aren’t. And, I do think that it is keeping some version of institutional capital on the sidelines saying ‘look we’re going to be ready to enter when we see this end-to-end kind of regulated product’ and I think this is great for the industry to see it happen.”
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