In a note that was passed to us in the late afternoon yesterday, it seems that the institutional rush to offer Bitcoin products to it clamoring clients has found its way into the hallowed halls of Bank of America and their investment banking and wealth management division, Merrill Lynch.
Yes, Bank of America and Merrill Lynch is set to produce a Bitcoin product that will be tradeable for clients and based on the futures markets in aggregate. As Goldman Sachs and Morgan Stanley rush into the market, Bank of America seems to be having a ‘don’t forget about us’ moment and following the same roadmap (a Bitcoin derivative connected to an NDF).
**A reminder concerning the use of an NDF for these firms and the purposes of Bitcoin: ‘In finance, a non-deliverable forward (NDF) is an outright forward or futures contract in which counterparties settle the difference between the contracted NDF price or rate and the prevailing spot price or rate on an agreed notional amount. It is used in various markets such as foreign exchange and commodities.’
Earlier this week it was revealed that Citigroup was chasing Goldman Sachs down this same road and preparing a like-minded Bitcoin derivative:
“Citigroup is rushing to leap ahead of its Tier I banking rivals across the globe by getting a Bitcoin trading product to market. Based on sources inside Citigroup and in and around crypto hedge funds it has become apparent that Citigroup is getting legally ‘creative’ to serve its customers with a tradeable, physical (digital/custody/warehouse’d) Bitcoin asset.
The intelligence that we’ve been passed sheds light on the strategy that has been proposed within the hallways of Citigroup and shown to a select few institutional clients. As per sources inside Citigroup, the product is being discussed as a ‘digital’ ADR. Effectively functioning as a foreign security product.”
And then just 48 hours ago Morgan Stanley floated smoke signals to the media that they were doing nearly the exact same thing:
“Morgan Stanley plans to offer trading in complex derivatives tied to the largest cryptocurrency, according to a person familiar with the matter, joining other Wall Street firms in creating ways for clients to play the digital currency market.”
“The U.S. bank will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, said the person, who asked not to be identified because the information is private. Investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction, the person said.”
“The bank is already technically prepared to offer the Bitcoin swap trading, and will launch once there is proven institutional client demand and after the completion of an internal approval process, the person said. A spokesman for Morgan Stanley declined to comment on the initiative.”
Our source on this intel comes from inside Merrill Lynch and closes the loop connected to Bakkt as well:
“The same structures (as Morgan Stanley and Goldman Sachs) are being built here as well. And if we are being as transparent as we can be at the moment – it is in direct response to what we believe Bakkt is going to provide and the liquidity with which these things are going to trade. Liquidity and custody make this a much easier conversation and dampens the risk for the firm and the bank. That is more important than being a half-step slow compared to Goldman or Morgan Stanley. But Bakkt is filling that gap for all of us. Expect this type of product to be a Bitcoin staple by the middle of 2019.”
Bakkt is playing a serious role with these developments and the following quote may be why:
“**A reminder of what Bakkt is and what it will actually launch in November of this year, via Forbes’ excellent article in early August: “Bakkt plans to offer a full package combining a major CFTC-regulated exchange with CFTC-regulated clearing and custody, pending the approval from the commission and other regulators. Bakkt will provide access to a new Bitcoin trading platform on the ICE Futures U.S. exchange. And it will also offer full warehousing services, a business that ICE doesn’t have. “Bakkt’s revenue will come from two sources,” says Loeffler, “the trading fees on the ICE Futures U.S. exchange, and warehouse fees paid by the customers that buy Bitcoin and store with Bakkt.”
“Step back and consider what you just read. A CFTC-regulated exchange, clearing, and custody. Some have often called Bitcoin ‘digital gold’. The infrastructure that Bakkt has built and is set to unleash takes the term ‘digital gold’ and makes it a reality.”
As these plans turn into actual products the scale of trading connected to Bitcoin and it’s derivatives will explode. 2019 could be a year that Bitcoin, and the crypt ecosystem takes off in a way that even the most bullish among us can’t envision.