The Current Situation and Prospects of BAKKT to which the Market is Focused
One of the most watched materials this year in the crypto asset market (hereinafter referred to as the cryptocurrency market) is the launch of “Bakkt with its Bitcoin Futures Platform” provided by the Intercontinental Exchange (ICE).
Many of the market participants are very interested in saying that the most important material in 2019 will be the “Bitcoin ETF” or “Bakkt” (※ See here for Bitcoin ETFs ).
In this article, after arranging basic knowledge about 1. Bakkt, I would like to explain why 2. Bakkt is gaining attention in the market, and 3. the prospect of its services starting.
- What is Bakkt?
- Why is Bakkt gaining attention in the market?
- Bakkt’s service launch time target
What is Bakkt?
Bakkt is a generic term for the following two services announced on August 3, 2018 by the Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE).
A: Bitcoin 1 day futures trading platform (physical settlement type)
→ There are two critical differences between Bitcoin futures offered by Bakkt and those already offered by the CBOE and CME. The first point is that the future period is 1 day. The second point is that it involves physical settlement.
→ 1 day futures + physical settlement is a very unique design. Because the futures period is only for one day, it must deal in actual bitcoin with settlement the following day. This is the reason why Bakkt is said to be a substantial cash market. On the other hand, Bitcoin futures provided by CBOE and CME will not be in kind the next day. On the liquidation day, only the dollar difference is deposited by difference in settlement, and actual Bitcoin doesn’t move at all.
B: Bitcoin storage service (warehousing service)
→ Bitcoin purchased on the futures platform A above will be in kind on the next day, so it is naturally exposed to theft risk such as hacking. It is Bakkt’s storage service (warehousing service) that protects against this risk. It is described that the Bitcoin deposit deposited is 100% protected by the company’s insurance fund and UK Lloyds Insurance (although a storage fee will be required separately).
Following the Chicago Option Exchange (CBOE) and the Chicago Mercantile Exchange (CME), even the US Intercontinental Exchange (ICE), which has global name value, has decided to begin dealing Bitcoin related services. The market responded with a positive surprise. The fact that Boston Consulting Group (BCG), Starbucks and a companies such as Microsoft have announced their collaboration with Bakkt is one of the reasons for the increased interest.
Why is Bakkt gaining attention in the market?
The biggest reason for Bakkt’s attention in the market is that Bakkt’s service launch is expected to attract large players such as institutional investors. If large players enter the market, Bitcoin recognition will increase, and by improving the market health and liquidity, the effect is expected to push the price of Bitcoin upwards. In this respect, the reason why Bakkt is being focused on is similar to the reason why Bitcoin ETFs were being focused on.
So why is Bakkt launching a service to attract institutional investors?
I have organized the following four reasons:
1. Eliminate fraudulent transactions and improve price transparency
Being under the jurisdiction of the Commodity Futures Trading Commission (CFTC) eliminates fraudulent transactions such as layering and improves price transparency and credibility.
2. Reduction of hacking risk ・ Even large lots can be traded with confidence
Bitcoin suffers from hacking and loss risks, so there are many investors who hesitate to trade in large lots. However, Bakkt provides a service that preserves 100% of a user’s Bitcoin, so investors are free from hacking and other stressful risks so they can focus on trading in large lots.
3. Thorough measures against KYC and AML
Bakkt’s account is opened via a Futures Broker (FCM), so KYC (Know Your Customer) and AML (Anti-Money Laundering) will be thoroughly implemented.
Bakkt will be a spot settlement type commodity of 1day futures, so the Bitcoin bought as futures will change on the spot the next day. If Bakkt’s service launch is successful, it will be the first cash market approved by the CFTC (a futures market with a property very similar to the cash market) and the cash market will continue to improve.
For the above four reasons, new players such as institutional investors are expected to enter the market.
Bakkt’s service launch time target
The immediate concern of the cryptocurrency market is Bakkt’s “when will it launch?”
The service launch of Bakkt was originally scheduled for November 18, 2018, but the deadline has been postponed to December 12, 2018 and then January 24, 2019, with the current date (As of February 25th, 2019) service launch not being realized yet. The market is disappointing as this delay has been a contributing factor to the lagging Bitcoin price.
However, Bakkt completed a series A round of $ 182.5 million (about 20 billion Yen) of funding at the end of last year, and recruiting activities have started in New York and Tokyo. In addition, it seems that preparations for service launch are steadily beginning with Bakkt’s advance account opening procedure through FCM being carried out under water.
With regards to the CFTC approval required for service launch, there are precedents in December 2017 (that CBOE and CME have obtained approval for Bitcoin futures), so it seems that the hurdle is not so high.
Given the above, Bakkt’s service launch may still be a timing issue. There is a good chance that it will be approved as early as 2019! Pay attention to the latest information from Bakkt as Bakkt can be the catalyst to boost the cryptocurrency market!