I have written previously about the Bitcoin ETF (link here). Now, I have recently found out about Bakkt. I discovered what they are doing to be even more impactful than the ETF. I figured out it is worth an in-depth analysis. Intercontinental Exchange, owner of the New York Stock Exchange and $80+ billion in assets, founded this startup. This new company has already raised more than $180 million in funding. Does the future look bright? Let’s look into why Bakkt can be even more impactful than the Bitcoin ETF.
Bakkt’s mission is to create the first cryptocurrency exchange dedicated to institutional investors. Although this will be their main clientele, the service will also be available to individuals. In addition to that, they plan to make this platform open-source. The most relevant challenge they are facing is that they want to create a market regulated at a federal level. I believe this might make a big difference. It might open an avenue to a different view of cryptocurrencies than the one that exists today.
Bakkt must have a very strong unique selling point. It got so much money in funding. It’s Intercontinental Exchange’s initiative. The startup is planning to release physically backed-up 1-day Bitcoin futures. They will deposit the amount purchased the next day to the buyer of the contract.
Besides this, Bakkt is creating an entire ecosystem for buying, selling, storing and spending digital currencies. This new player will probably bring increased security. Prestige will also be a key factor, because Intercontinental Exchange is backing this startup.
What effect will Bakkt’s solution have? Well, regulated futures have the potential to reduce volatility drastically. Let’s see why.
Firstly, the market entrance of institutional investors will make cryptocurrencies a lot more trustworthy. The big amounts they will invest will cause a proportional reduction in day-trading liquidities.
We have seen how the public reacts when Goldman Sachs was looking into Bitcoin trading. When they postponed it (the media dramatically called this ‘abandoning’), Bitcoin fell about 5% – read this.
One thing that I really appreciate of this startup is the fact that the futures will not be traded on leverage or margin. Investors will be trading fully collaterally.
Secondly, the futures will provide a good price predictability. The people engaging in transactions will consider the price of the futures in trading, especially because of the fact that they will be regulated federally and issued by the owner of the New York Stock Exchange. Another thing to consider is the fact that the existing future solutions are cash-based (what CME and CBOE are offering). Bakkt futures will strictly work with physical Bitcoin, a thing which will surely make the cryptocurrency infrastructure and market stronger.
There have been delays in Bakkt’s launch, due to approvals needed from the Commodity Futures Trading Commission. The initial estimate was around Late January 2019, but now everyone is still looking for an update. It is important to consider that President Trump’s strong demand for budgeting the border wall with Mexico is affecting government agencies.
One of the biggest supporters of this startup is Microsoft. The platform developed by Bakkt will be using their cloud solutions. Also, one of the investors is M12 Pantera Capital, the tech giant’s venture capital arm.
Besides the tech giant, the new company is planning to partner with other big companies, such as Starbucks or Boston Consulting Group.
Because of this big positive support, I believe that Bakkt will have a bigger impact than the Bitcoin ETF. which did not spark the interest of the big institutions. In my opinion, it would rather be a good fit for mutual funds and ETF individual investors, while the big institutional players will be working with this startup. The people who will be wishing to invest in retirement plans (401(k), IRA) will have this new option. This might additionally increase public engagement. Moreover, the new company might be the catalyst for the Bitcoin ETF approval, which makes Bakkt more impactful than the latter.
I believe that Bakkt is doing a very good job. We need more such startups in the cryptocurrency industry. The market will thrive only if such companies are involved. If they cease to exist, the situation will be worse. I am excited to see if Bakkt will be more impactful than the Bitcoin ETF. But I am sure that both will bring a good change to the market.
If you want to know more about trading futures in general, I recommend Jack Schwager’s book (link).
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