History, Perspectives, Concerns and Official Launch
As the cryptocurrency market popularity grows, the need for a safe and effective way to use digital assets grows too. To help its development, it is necessary to work out mechanisms for regulating the industry, which will protect investors from fraud and increased volatility that take place in this young market.
It should be mentioned that the SEC still did not approve Bitcoin-ETF, but in this article, we will talk about another large-scale event in the cryptocurrency market — the launch of the regulated Bakkt platform. With its help, ordinary users and large organizations will be able to perform various operations with digital assets with a high level of comfort. So, let’s not get ahead of ourselves and discuss all the important aspects that are related to this topic.
The CEO of Intercontinental Exchange (ICE), Jeff Sprecher, is the author of Bakkt. It is noteworthy that his wife Kelly Leffler will become the CEO of the new project. Now she holds the position of head of the ICE digital assets department.
ICE is the operator of the New York Stock Exchange and a dozen other regulated sites. The first rumors that the company plans to launch its own cryptocurrency platform appeared in May 2018. As it was told, the successful implementation of this initiative will open access to Bitcoin to a broad and fairly influential client base. Finally, at the beginning of August last year, company representatives officially confirmed rumors about the launch of the Bakkt platform, which will allow users and institutional investors to buy, sell and store digital assets in the global ecosystem.
- Microsoft Corporation with its Microsoft Cloud product;
- Starbucks, which is responsible for promoting Bakkt. It’s not a secret that the majority of Starbucks customers are young people with progressive thinking, so Starbucks gives the project a huge client base.
- A large consulting firm BCG, whose representatives believe that the key to promoting the industry is in the development of infrastructure.
However, it is not a complete list, and it will surely increase in the future.
- Unique Futures with BTC physical delivery will be launched on the Bakkt platform. This means that investors will receive Bitcoin in their account and not its fiat equivalent upon the expiration of the contract. Recall that all previous futures that have ever been launched on BTC have never physically come into contact with cryptocurrencies. Bakkt platform will support various fiat currencies: dollars, pounds, euros and so on.
- The creators of the project explain the choice in favor of Bitcoin by the fact that it still has the highest liquidity. By combining consumer and institutional applications with a regulated infrastructure, the project founders seek to ensure transparency and trust in the cryptocurrency market. This will provide the project with a key role in enhancing institutional, commercial and consumer market participation.
- The platform will use the time-tested infrastructure of the futures markets. This means that the assets needed to secure the contracts will be in the ICE repository, and the contract clearing will happen through the ICE Clear US exchange.
- All Bakkt internal transactions will not be carried out offline, record to the blockchain will take place exclusively after the funds are transferred to external wallets.
- A guarantee insurance fund will be launched with Bakkt to avoid default in case of default.
- It will not be possible to engage in illegal money laundering on the site since all users must pass KYC before bidding.
In December 2017, a few days before the current historical maximum of Bitcoin was fixed, BTC futures have been launched on two Chicago СМЕ and СВОЕ exchanges. At the time of launch, this asset was at the stage of parabolic growth and many experienced traders understood that this process could not continue forever.
It is worth remarking that the news about the launch of СМЕ and СВОЕ futures held the investors’ interest, and it played an important role in such a rapid increase in the asset price.
After the BTC began to fall, futures liquidity also began to decline. This led to the fact that in March 2018, СВОЕ closed this area. Representatives of the site said that they are forced to reconsider their approach to working with digital coins.
As for CME, there is an opposite situation, at the end of June 2019, platform representatives said that CME futures reached a record high of $1.7 billion. At that time, 6069 contracts were opened. This suggests that in 2019 institutional investors have an increased interest in digital coins, and futures are an excellent tool.
The Chicago Exchange is making grand plans for Bitcoin futures. CME wants crypto traders to hold more open positions at the same time. The exchange management has already sent a letter to CFTC, asking to increase the limit of spot positions for Bitcoin futures. This will increase the number of transactions for a crypto investor from 1 to 2 thousand. Given that each transaction is designed for 5 BTC, the maximum risk for traders will increase from 5 thousand Bitcoins, equivalent to 50 million dollars, up to 2 thousand contracts — this is 10 thousand Bitcoins or 100 million dollars.
It should be mentioned that the general public reacted the news about Intercontinental Exchange’s plans to launch the Bakkt platform quite positively. Many analysts expressed the opinion the BTC rate can raise to previously unprecedented heights, as the money of institutional investors will come to the industry. For example, Pantera Capital CEO Dan Morehead said:
The launch of Bakkt is truly a major event that will have a huge impact on the development of the market for 5–10 years.
The chief analyst of Fundrast Global Advisors Tom Lee noted that Bakkt will be the start of a large infusion of cash, which will inevitably lead to a huge increase in market capitalization.
Note that these are just a few well-known names that in one way or another spoke positively about the launch of the Bakkt platform. Talking about each of them separately would take too much time, let’s better describe the exact changes that await for the cryptocurrency industry, by Bakkt supporters opinion.
- The most important thing is the arrival of institutional investors in the industry, which will lead to a growing interest in the industry of ordinary people.
- The rapid development and improvement of the existing infrastructure, which will allow the use of digital coins with a high level of comfort.
- The popularization of Bitcoin and cryptocurrencies in general.
- A significant increase in the rate of BTC and the overall capitalization of the cryptocurrency market.
The flip side of the coin also exists here, so let’s look at the possible negative impact of the Bakkt launch.
Bakkt has not only supporters but also ardent critics, recall that in September 2018, several well-known people from the cryptocurrency industry wrote a collective letter to the SEC urging to limit some of Bakkt’s capabilities. They said the platform is going to use a number of solutions that work well in traditional markets, but are absolutely useless or even harmful to cryptocurrencies since they destroy the main advantages of the technology. In their letter, they paid special attention to centralization and the danger of re-mortgaging assets.
The creator of the Dogecoin cryptocurrency, Jackson Palmer believes that institutional investor money will turn the digital coin market into Wall Street 2.0, and it will negatively affect decentralization and asset allocation.
We will not list the thoughts of all experts either, but will describe all the possible negative consequences of the launch of Bakkt shortly:
- Centralization. The fact is that the Bakkt platform will store all funds in one wallet, which is quite common practice in traditional markets, but this violates the main principle of cryptocurrencies — decentralization. Also, such an approach can lead to a mix of funds from creditors and depositors, and this is what happened during the global financial crisis in 2008. In addition, the security level is significantly reduced and, therefore, the probability of a successful hacker attack is increased. Note that the vast majority of large cryptocurrency exchanges are now centralized and they store all their funds in one wallet.
- Remortgage. As we wrote earlier, the physical delivery of BTC will be implemented on the Bakkt platform, but this can lead to a coin shortage. For example, one investor claims to own a certain number of coins, lend them to another, after which the second does the same. The problem is that all internal transactions on the platform will take place outside the blockchain, in other words, users will only see the numbers on the screen, and they will be able to own the coins physically only after they withdraw them to an external wallet.
- Possible Bitcoin hard fork. The fact is that Bakkt users can create too many debt receipts for futures and this can lead to default. This may be a reason for a hard fork, the main purpose of which will be to create a new chain of blocks where will be no debt receipts, and the original chain will become invalidated. In this case, the chances of getting your money back from the Bakkt platform become lower.
So, after a year of waiting, the CFTC approved the opening of the Bakkt platform, its official launch will take place very soon, on September 23, 2019.
Recently, on September 6, the platform opened accepting deposits, and to participate in daily or monthly futures a minimum of $3,900 must be paid, and the ‘Speculative Initial Requirement’ is slightly higher — $4,290.
Also, Bakkt representatives assured that their regulated platform will be protected against default by an insurance fund of $125 million.
As you can see, the cryptocurrency community opinion was divided on this point. Today it’s hard to say exactly what impact the launch of the Bakkt platform will have on the cryptocurrency market, but one thing is clear: it will be a large-scale event for the entire industry, which will cause great resonance in the media.