What is Bakkt and Why It Might Be the Biggest Crypto News of the Year
A relatively low-key press release announced a Microsoft, Starbucks and BCG-backed cryptocurrency exchange, named Bakkt. The new exchange is to be launched in November and has been making a few headlines since the announcement in early August. A closer look, however, shows it might deserve a much more interested look. Lets see what we know so far:
Bakkt is promising to address issues of regulatory compliance, transparent and efficient price discovery and pre- and post-trade infrastructure. It will do this by offering fully collateralized (hence the name Bakkt — which comes from backed) or pre-funded Bitcoin futures contracts trading. It will offer no opportunities for leverage, margin or “serve to create a paper claim on a real asset”.
Bored yet? Don’t be. This really matters.
Bakkt is being spearheaded by Intercontinental Exchange (ICE), one of the world’s biggest global stock exchange, clearing houses, data and listings services operators, alongside a number of high profile investors. The focus on transparency and regulatory compliance means one and one thing alone — Bakkt will target institutional money, the holy grail of the crypto world.
Many have tried and failed, but this cryptocurrency exchange might just have the funds, the contacts, the experience and the infrastructure to pull it off.
“Coupled with a secure, regulated warehouse solution, you can begin to see how this market infrastructure can help more institutions and consumers participate in the asset class”, the press release goes on to say.
The platform will offer federally-regulated markets and warehousing along with merchant and consumer applications. It intends to create the ecosystem to offer Bitcoin mutual funds, pension funds, and ETFs, as highly regulated, mainstream investments for big money movers.
The aim is wide. Through Microsoft’s Azure, it will leverage cloud solutions to create an open and regulated ecosystem for crypto assets. Through Starbucks and other partners, it will likely try to bring Bitcoin to your credit card and your coffee purchases.
To kick off the process, ICE’s U.S.-based futures exchange and clearing house is going to launch a 1-day physically delivered Bitcoin contract in November, pending on approval by the U.S. Commodity Futures Trading Commission. This will be an important first step towards answering some of the issues raised by regulators like the SEC for the approval of Bitcoin ETFs and other products.
In fact, Bakkt’s structure has been designed to put issues like the lack of trusted price formation and reliance on futures markets and derivatives, recently raised by the SEC to deny several Bitcoin ETF applications, to rest. At least on paper, Bakkt’s proposal seems to be compliant with all requisites for the SEC approval.
Before we start hailing Bakkt as the future of cryptocurrency exchanges, it is important to know that the baseline concept behind it might offend quite a few cryptocurrency enthusiasts. According to a Fortune Magazine interview with ICE’s CEO Jeffrey Sprecher and his wife, Kelly Loeffler, who was ICE’s communication manager and is now Bakkt’s CEO, the power couple considers that “Bitcoin was the epitome of a broken model that if fixed, could change the world”.
If centralized cryptocurrency exchanges opening doors for major institutional investors to tap into the crypto markets is the way to fix the problems of Bitcoin is open for debate. However, Bakkt, in the few glimpses it shed so far into what its future operations will look like, has already claimed to have addressed the transaction scalability issue that makes Bitcoin unfit for large-scale financial transactions.
In their own words, Bakkt’s “system would operate on a layer above the blockchain, and we’d keep our own omnibus ledger apart from the blockchain”. Basically, Bakkt would contain transactions within its ecosystem and only communicate the final balance to the network. Yes, you have guessed, it is basically the tech proposal of Bitcoin’s Lightning Network.
One thing is for sure, with or without the support of die-hard Bitcoin and cryptocurrency enthusiasts, Bakkt is bound to send ripple effects across the ecosystem, as institutional investors finally find the regulated compliant and familiar mechanisms that they needed to tap into this bold new market.
How that will affect the cryptocurrency market itself, it remains to be seen, but our view is that it might be much more significant, for better or worst, than any Winklevoss approved ETF.
Disclaimer
We are stating our vision and opinions, we are not giving you financial advice and if you invest in this project it is your full responsibility. You are investing at your own risk. Always invest only what you can afford to lose and try to diversify your investments. Finally, do your own homework and learn about the project use case, roadmap and team.
Originally published at www.coinvision.co.
