Update: the Bakkt digital assets platform delayed Bitcoin futures launch and now targeting Jan. 24, 2019 as a launch date.
2018 has been a sluggish year for the cryptocurrency sector so far, but with Bakkt on the horizon, that may be about to change. A cryptocurrency startup launched by the Intercontinental Exchange (ICE), many believe Bakkt could be transformative and ignite a cryptocurrency revolution.
Backed by such corporate heavyweights as Microsoft and Starbucks, Bakkt is scheduled to begin testing and onboarding in November and trading and warehousing in December subject to CFTC approval, according to Bakkt CEO Kelly Loeffler. I, personally, believe this launch will be tremendous for the digital currency space, and could, in fact, be the biggest Bitcoin catalyst since the financial crisis in 2008. Here are four reasons why.
Bakkt Could Be the Driving Force Behind Mainstream Adoption
In the wake of the financial crisis in 2008, one thing became abundantly clear: the status quo for processing financial transactions was no longer acceptable. It was precisely the right time for Satoshi Nakamoto’s whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System,” with its vision for a “purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution,” to make such a dramatic impact.
Fast forward ten years. While the spirit of that initial abstract is alive and well today, there are also some differences. Particularly, in 2018, there is the non-negotiable need for the crypto sector to work alongside regulators in order to create lawful products — and Bakkt is very aware.
“Bakkt will draw resources from reputable companies with knowledge in fields of risk management and technology to create a federally regulated platform. Once investors feel at ease trading in a regulated environment volatility should ease,” said Christopher Bates, a former Member of the NYSE.
Indeed, I believe that Bakkt, which is described as a “scalable on-ramp for institutional, merchant, and consumer participation in digital assets by promoting greater efficiency, security, and utility,” is precisely the kind of offering that will appease regulators and drive an influx of institutional interest to the crypto space.
Physical Bitcoin Futures Contracts Add Further Legitimacy
On September 25, Bakkt launched its first product: a physical Bitcoin futures contract. These differ from existing Bitcoin futures contracts because “as part of the settlement process of ICE-operated Bitcoin futures, the Bitcoins will actually be delivered on a certain date, unlike other present-day Bitcoin futures that are cash-settled.”
Furthermore, Bakkt’s newest product addresses some of the shortcomings that contributed to the rejection of many Bitcoin ETF applications earlier this year, particularly the lack of trusted price formation and reliance on futures markets and derivatives.
“With our solution, the buying and selling of Bitcoin are fully collateralized and pre-funded. As such, our new daily Bitcoin contract will not be traded on margin, use leverage, or serve to create a paper claim on a real asset. This supports market integrity and differentiates our effort from existing futures and crypto exchanges which allow for margin, leverage, and cash settlement,” Loeffler recently said.
Indeed, I believe Bakkt’s physical Bitcoin futures contract, the company’s first concerted effort to provide a lawful solution in the crypto market, will be a tremendous success in the space.
Bakkt Offers the Heightened Security Customers Need
In particular, the issue of crypto custodianship has become a major initiative for many companies. “By some estimates, there are $10B of institutional money waiting on the sidelines to invest in digital currency today,” CEO of Coinbase Brian Armstrong said last year in a blog post. What’s stopping them? “The existence of a digital asset custodian that they can trust to store client funds securely,” Armstrong continued, before introducing Coinbase Custody.
Bakkt, too, will provide a qualified custodian for cryptocurrencies, thereby enabling various institutional investors to make investments in the crypto asset class. In addition, the company’s security solutions include the monitoring of cryptocurrency fraud, ultimately paving the way for mainstream adoption by catering to both institutional and regulatory needs.
Scalability Suited for Institutional Adoption
In addition to concerns surrounding security, concerns about Bitcoin’s scalability have also prevented mainstream adoption— after all, Bitcoin’s current capacity is about seven transactions a second, which is far too slow to operate at an enterprise level.
However, Bakkt is prepared to tackle this issue by utilizing a primarily off-blockchain solution. The startup would be connected to the ICE Futures U.S. Exchange, so customers can seamlessly trade Bitcoin for dollars or Euros. Then the Bitcoin will shift from the seller’s lockbox in the ICE warehouse to the buyer’s lockbox, and transactions would only need to be reported to the blockchain if there were payments coming into or exiting Bakkt’s warehouse.
With this structure, Bakkt is “enabling its system to operate at warp speed,” and able to keep up with demands at the enterprise level.
For all of these reasons, I, along with many other industry experts, believe Bakkt’s launch in early November will make a dramatic splash in the crypto market. With all of the resources it needs to acquire and maintain institutional adoption, I believe it is ultimately the biggest Bitcoin catalyst since 2008.