One of the last hurdles to anchoring cryptocurrencies in the global economy is their recognition as regulated financial instruments along with their seamless integration into the regulated FIAT world. The US startup BAKKT could remove those hurdles to make cryptocurrency mainstream.
Despair on Wall Street
The situation really seems to be desperate for the “smart old boys” of Wall Street. The crypto-hype and the associated billion-dollar profits of 2016 and 2017 have passed them by without any trace in their books and commissions. The profits of others are even more painful for Wall Street’s self-conception than the lost profits. They had to stand aside and watch as mere observers of the scene as new and unregulated traders from China, Russia, South Korea and other countries captured the billion-dollar profits from this new phenomenon. Typically, it’s Silicon Valley and New York that are the pacemakers and early profit takers. Unfortunately, the lack of regulation made it impossible for the US guys to enter the speculative business on an institutional level.
For months now, various Wall Street companies have been trying different approaches to subject the cryptocurrencies to SEC or CFTC regulation in order to invest institutional funds in Bitcoin & Co. So far, however, the various applications for approval of a Bitcoin ETF, for example, have been rejected by the SEC. The crypto-markets would be too susceptible to manipulation and fraud, argued the U.S. supervisor. Most recently, the revised application for approval of a Bitcoin ETF by the WINKLEVOSS brothers and nine other applications from Wall Street companies had also been rejected. The SEC still presents the believe that the crypto-markets are not yet ready for ETFs. So it’s still “please wait” for Wall Street firms.
What you cannot have yourself, others should not be able to have either. True to this motto, many Wall Street people have therefore badmouthed cryptocurrencies and labeled them “bubble”.
A new approach presented by old hands
Intercontinental Exchange (ICE), the owner of the New York Stock Exchange (NYSE) and other major exchanges, is now pursuing a new and highly interesting approach. At the beginning of August 2018, ICE announced the launch of its startup BAKKT. The project, which was set up together with prominent partners such as Boston Consulting Group, Microsoft, and Starbucks, aims to create a platform for the regulated trading of digital assets such as Bitcoins.
The Bakkt ecosystem is expected to include federally regulated markets and warehousing along with merchant and consumer applications. Its first use cases will be for trading and conversion of Bitcoin versus fiat currencies, as Bitcoin is today the most liquid digital currency. The effort is designed to address evolving needs in the estimated $270 billion digital asset marketplace.
We understand, that BAKKT aims to create an efficient and regulated transaction environment for the handling of bitcoins for consumers, merchants, and traders. This will enable customers of Starbucks to pay with their Bitcoin Wallet instead of credit or debit cards. BAKKT would also finally create the regulated market environment required by the SEC for the ETFs and Wall Street.
The project was conceived by ICE CEO Jeff Sprecher and his wife Kelly Loeffler, writes Fortune. The latter is also to become CEO of BAKKT. Jeff is regarded as a leading visionary of finance, who has already implemented several innovations in the financial industry together with his wife Kelly. Both are heavyweights in the international financial world and have a corresponding influence on the establishment.
BAKKT intends to start with a sort of Bitcoin Future which, unlike the existing Bitcoin Futures of its competitor Cboe, will also be settled in Bitcoin:
Intercontinental Exchange’s U.S.-based futures exchange and clearing house plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to CFTC review and approval.
The Bitcoin futures released by Cboe last year, on the other hand, are settled in dollars, which is more complicated for traders. With BAKKT’s Bitcoin Futures, the price difference when the futures expire can be settled with bitcoins instead of dollars. This is intended to make life much easier for crypto-traders by eliminating the transactions to exchange Bitcoin and against FIAT and vice versa. Owners of Bitcoins can thus work directly with the futures without the FIAT detour. Market participants present themselves as officially impressed by this approach.
The implementation of these physically-delivered Bitcoin futures also requires an appropriately secure infrastructure to ensure the secure and tamper-free storage of bitcoins and secure wallet transactions. BAKKT has announced to work together with its partner Microsoft on such a transaction environment and will become a regulated custodian. Kelly Loeffler told Fortune that ICE and its partners have been “building the factory” that will power BAKKT in “stealth mode” for the past 14 months. Details are currently lacking to enable further analyses to be carried out. Bitcoin futures are scheduled to be launched in November 2018.
Another interesting aspect of BAKKT is the integration of consumers through the current project partner Starbucks. The payment option with Bitcoin Wallets would also help the cryptocurrency to make a breakthrough in everyday life and thus contribute to mass acceptance.
Wall Street Ante Portas
The BAKKT announcement is just another evidence for our hypothesis that Wall Street around the SEC is systematically preparing the entry into crypto. The many rejections of the requested ETFs by the SEC have given Wall Street the necessary time to do so. In our opinion, it seems likely that the first ETFs will be approved in the first quarter of 2019 at the latest (possibly as early as the fourth quarter of 2018) by the SEC. This would enable institutional investors to enter the crypto market and thus bring urgently needed liquidity. Until then, the “smart old guys” have no interest in high bitcoin prices.
Also published on Medium.