Bakkt, the cryptocurrency startup launched by the Intercontinental Exchange (ICE), is scheduled to launch in November, and with the objective to “transform Bitcoin into a trusted global currency with broad usage,” there is speculation that this is precisely the type of groundbreaking event that the Bitcoin market needs to gain momentum after a sluggish year. I personally believe that the launch may take Bitcoin past $10,000 before the end of 2018— here are four reasons why.
Tidal Wave of Institutional Investors Could Flood the Space
Described as a “scalable on-ramp for institutional, merchant, and consumer participation in digital assets by promoting greater efficiency, security, and utility,” I believe that Bakkt, which is aptly named as a play-on “asset-backed securities,” is precisely the type of offering that will drive a massive influx of institutional interest to the crypto space, even more so than a Bitcoin ETF.
While it’s true that people frequently claim that certain events and announcements in the crypto space are indicative of mainstream adoption, I believe these claims, in connection to the launch of Bakkt, are particularly substantive. “Traditionally volatility scares most investors no matter the asset class,” says Christopher Bates, a former member of the NYSE. “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.”
Indeed, I believe Bakkt’s first product launched on September 25, physical Bitcoin Futures contracts, which cannot be traded on the market without physically taking ownership of the underlying cryptocurrency, is Bakkt’s first concerted effort to ease fears of institutional investors who have previously stayed away.
Addresses the Shortcomings of Failed Bitcoin ETF Applications
Bakkt is focused on resolving two of the issues that contributed to the rejection of Bitcoin ETF applications earlier this year — specifically, the lack of trusted price formation and reliance on futures markets and derivatives.
As Bakkt CEO Kelly Loefffler states: “A critical element to price discovery is physical delivery. Specifically, 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.”
Ultimately, I believe these key distinctions will help distinguish Bakkt and make the company’s launch the biggest event in the crypto market this year.
One of the major roadblocks to achieving widespread institutional adoption of cryptocurrency has, not surprisingly, been concerns about security. Indeed, vulnerabilities in the crypto market were particularly highlighted in the wake of rampant ICO scams and crypto scams last year.
Thankfully, 2018 has brought an increased focus on regulatory alignment, with companies such as blockchain startup Chainalysis raising a sizable amount of money in order to provide cryptocurrency organizations with reliable Bitcoin transaction analysis data so as to be better equipped at identifying fraudulent transactions.
Bakkt, too, will provide a range of security solutions within its platform, including the monitoring of fraudulent transactions and market manipulation, as well as partnering with regulated exchanges and custodians to create an “open and regulated, global ecosystem for digital assets.” Also, Coinbase announced its launch of Coinbase Custody that could, according to CEO of Coinbase Brian Armstrong, potentially permit an additional $10 billion of institutional money to enter the space.
Operates at Warp Speed
Much like concerns about security, concerns surrounding Bitcoin’s scalability have also prevented mainstream institutional adoption. Bitcoin’s current capacity is about seven transactions a second, which is far too slow for a market to operate at an institutional level. However, developers are implementing innovative solutions like the Lightning Network in order to expedite cryptocurrency payments off the blockchain.
Bakkt will also be offering a high-speed solution. Bakkt plans to hold all Bitcoin in its warehouse, which would enable Asset Manager A to buy millions in Bitcoin from Asset Manager B, and then simply move the tokens from B’s account to A’s account via a trade on the ICE exchange. As long as exchanges are within the Bakkt ecosystem and kept within the Bakkt ledger, the exchange will not need to be reported to the greater blockchain. Transactions would only need to be reported if there were payments coming into or exiting Bakkt’s warehouse. With only a tiny portion of transactions being reported to the blockchain, Bakkt is “enabling its system to operate at warp speed,” and therefore able to keep up with institutional demands.
For all of these reasons, I, along with many other industry experts, am optimistic about Bakkt’s significance in the crypto sector and believe that it will contribute to a significant Bitcoin value increase by early November.