Bakkt’s been a hot topic lately and most of us that follow cryptocurrency and blockchain news still can’t seem to understand what’s all the hype all about. No worries, we’re here to break it down for you with an overview of what Bakkt is and why everyone is talking about how it would change the cryptocurrency world.
What is Bakkt?
Let’s start off with the bare basics. What exactly is Bakkt?
The brains behind Bakkt is none other than Jeff Sprecher, head of Intercontinental Exchange (ICE), the world’s premier stock exchange operator.
Behind the development of the project is Intercontinental Exchange (ICE) itself – the operator of global stock exchanges and data services.
Bakkt will cooperate with such giants in the field of emerging consumer fintech, like BCG, Starbucks, Microsoft.
The main goal is to form an accessible ecosystem capable of supporting the growing needs of the digital assets market.
Investors of Bakkt include Fortress Investment Group, Eagle Seven, Galaxy Digital, Horizons Ventures, Pantera Capital, Protocol Ventures, Susquehanna International Group, LLP, as well as British billionaire and hedge fund manager Alan Howard.
Bakkt first burst into headlines in August, and ever since then there’s been endless news surrounding Bakkt.
The reasons for the excitement are:
- Bakkt will provide a scalable crypto trading platform for institutions.
- It will include regulated custody service for the secure storage of Bitcoin.
- It will be a payment platform that will allow consumers to pay with crypto for anything from a Starbucks coffee to computer products.
- And it has a very big name behind it: ICE, the owners of the New York Stock Exchange.
The buzz is that Bakkt will draw big institutional money into crypto and usher into a potential bull run market.
Some financial experts go so far as to say that Bakkt will have more impact on the market than any Bitcoin Exchange-Traded Fund (ETF) that might come along.
Bakkt is supposed to integrate institutional level markets with a custodian services system through trade and consumer applications.
The first phase of the project will focus on trading and exchange transactions with Bitcoin and fiat currencies. The choice in favor of Bitcoin is explained by the fact that it still has the highest liquidity in the cryptocurrency market.
As part of the initial offer of Bakkt, ICE plans to release non-digital Bitcoin futures with custodian services in the first quarter of 2019, subject to review and approval of by the Commodity Futures Trading Commission (CFTC). Recent news has been showing a delay in the launch of the futures.
Future regulated trading platforms will establish new protocols to manage specific security requirements and transactions with digital assets. In addition, the clearinghouse will form a special guarantee fund, financing of which will be provided by Bakkt.
As we know, partnerships play an important role in any blockchain or cryptocurrency company.
Bakkt’s partners could play an equally large role in cryptocurrency’s future:
- Microsoft will provide the cloud infrastructure to run the trading platform for institutions and the payments platform for consumers. Microsoft may also contribute artificial intelligence (AI) technology. Plus, it’s possible that Microsoft Pay will get into the act, creating some level of integration with Bakkt.
- Boston Consulting Group is also a major partner, opening the door to a host of Fortune 500 companies who should help drive the promotion and widespread adoption of the Bakkt platforms.
- And Starbucks could be especially critical to help stimulate mainstream adoption by millions of average consumers globally.
Yes that means that Starbucks may eventually accept your Bitcoin!
There’s a long list of benefits that Bakkt can bring to the table. Here are some:
- Availability of sale, purchase and storage of digital assets to end users through ICE.
- Increase confidence, efficiency in the use of digital assets in commerce leading to mass adoption.
- Its wide range of services includes customer service in investment and trading in global financial markets through exchanges, clearing houses and information services.
- ICE Data Services is a leader in market data, providing the necessary information and connectivity to virtually any type of asset.
- ICE is the parent company of the New York Stock Exchange, which has helped many companies increase their capital more than any other exchange in the world, stimulating economic growth and transforming markets.
- Owns the world’s largest market for ETF Arca and the leading platform for mid-tier companies NYSE American.
- It is a leader in almost all categories of futures for “soft” agricultural products (sugar, coffee and cotton).
- ICE’s powerful trading infrastructure can become a platform for the development of Bakkt, providing it with everything necessary for successful development.
- The project has enormous potential for ensuring wide recognition and use of digital assets, which in turn will have a positive effect on the overall capitalization of the digital assets market.
- The project is planned to be launched in early quater 2019 with the participation of the 12 largest world exchanges and a wide range of exchange instruments that will ensure the introduction of Bitcoin into the fiat market as a global digital currency.
Prehaps the most discussed topic around Bakkt is their upcoming launch of futures trading.
Bakkt will launch its first product, Bitcoin futures trading, on Jan. 24. Although Bitcoin futures already exist on the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE), Bakkt is taking a giant step beyond: Its futures contracts will be backed by physical Bitcoins stored in ICE’s Digital Asset Warehouse.
So, unlike the CME and CBOE Bitcoin futures, which can only be settled in cash, any Bitcoin bought on Bakkt will be added to custody — directly boosting demand and, naturally, its price. Likewise, any Bitcoin sold on Bakkt will be removed from custody, with the opposite effect.
Plus, the Bakkt futures contracts, each representing a single Bitcoin (BTC), will be settled in 24 hours. This means that as soon as you buy a futures contract from Bakkt, you get an actual Bitcoin the next day.
Imagine having all of those happen in the mainstream? That would be huge for any trading firm or individual investor.
The contract size of 1 BTC could also make the trading attractive to institutions and large speculators, implying high trading volume.
The bigger picture
It’s hard to imagine a scenario in which Bakkt will NOT open the doors for large institutions to buy cryptocurrency.
Along with that, we’ll be seeing larger trading volume. Right now, the combined CME and CBOE Bitcoin futures daily volume is only 9,000 Bitcoin (BTC). That’s quite small in comparison to the total daily volume on exchanges.
With the launch of Bakkt, institutional volume could not only grow by leaps and bounds, it could even rival (if not surpass) the trading volume on the exchanges.
We expect many institutional investors to move from the opaque OTC markets to more transparent platforms like Bakkt. This will result in more liquidity and lower volatility for crypto investors.
Another thing we have to note is that this might also open the doors to more ETF approvals. Right now, we count 10 crypto ETFs that have already been rejected by the SEC. But Bakkt could help resolve potential issues, greasing the way for the launch of future ETFs like the VanEck/SolidX ETF in 2019.
Nomore unregulated ICOs: Bakkt will attract more corporate issuers to raise capital via ICOs. And on the next round, we expect to see greater clarity, especially when it comes to the distinction between utility and security tokens.
In the long term, however, the outlook is much clearer: Projects like Bakkt could greatly enhance the liquidity, stability and overall size of crypto, helping to create a multitrillion-dollar global marketplace unlike any we’ve seen before.
In this regard, the year 2019 can be considered as the year of the merger of two segments of the financial world on a global scale – the fiat market and the sphere of digital assets.