The cryptocurrency world is eagerly waiting for a new app called Bakkt to go live. But what is it? Why is it so important? And could it really change the face of the crypto sector forever? Let’s take a closer look.
What Is Bakkt?
According to Bakkt’s own website, the new app has a simple aim:
“Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency, and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the blockchain.”
But what does that mean in practice? The big hope is that it will become a single platform that allows institutions, merchants, and consumers to do business with each other, thus helping to bring the benefits of cryptocurrencies to more people and companies around the world.
In a press release, Bakkt CEO Kelly Loeffler said the app would “unlock the transformative potential of digital assets across global markets and commerce.”
What Services Will Bakkt Offer?
Although there are still a few grey areas, it’s expected that Bakkt will focus on four key services:
- Retail Payments: Providing an easy and cost-effective way for customers and businesses to process small, low volume crypto payments.
- Futures: Bakkt will finally allow people to trade crypto using futures contracts.
- Savings Plans: Bakkt plans to move into the 401(k) and IRA market.
- Wallets and Insurances: Bakkt will provide wallets for users to store their coins, along with insurances should those wallets get hacked.
The launch of Bitcoin futures contracts is perhaps the Bakkt feature that’s generated the most hype.
For the first time in the crypto sector, Bakkt’s futures contracts will be physically-settled rather than cash-settled. In practice, it means actual Bitcoins will need to be delivered on the specified date rather than paying/receiving the difference between prices in dollars.
In theory, this should improve arbitrage opportunities and increase prices. When physically-backed gold ETFs launched in 2013, the price of gold rose by 300 percent over the following decade.
(The SEC has shut down multiple attempts to launch Bitcoin ETFs.)
Who Is Behind Bakkt?
One of the reasons everyone is so excited about Bakkt is due to the companies who are behind it.
The app’s owner is Intercontinental Exchange (ICE). For those who don’t know, ICE owns and operates the New York Stock Exchange, as well as futures exchanges and clearing houses in the United States, Canada, Europe, and Asia. The company also provides market data for almost every asset class and has helped raise more capital than any other company in the world.
It’s fair to say, therefore, that ICE has a good standing with many of the largest financial companies in the world. And, as crypto attempts to attract serious institutional money, that can only be a positive thing.
So far, ICE’s charm offensive has been working. The company has attracted a stream of high-profile backers and investors. They include Alan Howard, Pantera Capital, Fortress Investment Group, Eagle Seven, Galaxy Digital, Protocol Ventures, Susquehanna International Group, and Horizons Ventures.
Away from the financial world, Bakkt is also working with two huge organizations: Microsoft and Starbucks. ICE has built the entire system on Microsoft’s Azure cloud services, while rumors suggest Starbucks will soon accept crypto payments via Bakkt in its cafes.
The Key Benefits of Bakkt
Bakkt will bring some key benefits to anyone involved in the crypto world.
The main reason people are so enthused about the Bakkt ecosystem is because of the way it will break down the barriers to entry for institutional money.
Historically, one of the most significant barriers has been asset security. Contrast crypto with assets such as equities and bonds. From an institutional standpoint, traditional assets are incredibly hard to steal or lose. Crypto—not so much. There’s a long list of scams and hacks all of which result in lost capital. And that’s before you start worrying about lost or stolen private keys.
Bakkt promises to introduce “federally regulated” warehousing. It means ICE will be working with authorities to provide a safe and secure framework in which to store digital assets.
Regulatory issues are one of the critical problems facing the blockchain industry. 2018 was supposed to be the key we finally saw some clarity, but that’s not materialized.
Indeed, there’s still a lack of regulation at all levels—from the offshore exchanges through to the way cryptos are taxed.
As a serious investor or large institution, the opacity of the rules is off-putting. Firms aren’t going to stake their reputations on such murky waters.
Bakkt will work in tandem with the Commodity Futures Trading Commission (CFTC) to ensure all investments are legal and tax compliant before any capital changes hands. The exchange platform will be federally regulated and government-approved.
Cryptocurrencies have been stuck in a vicious circle. One of the main reasons institutional money has stayed out of crypto is due to volatility, but volatility can only be cured with a massive injection of capital to steady the prices.
If Bakkt can drive significant amounts of institutional money into the crypto sector, experts hope that volatility will go down, at least for ICE customers.
Wider crypto adoption might happen in a couple of different ways. Firstly, it’s hoped that when the big institutional money gets involved, it will inspire smaller investors to come on-board. In the financial world, the lesser money typically follows the big money. Think along the lines of credit unions, retirement accounts, and 401(k)s.
Secondly, Bakkt will hopefully provide a way for non-crypto-savvy people to get involved with crypto. At the moment, a lot of people neither understand nor care about it, meaning businesses haven’t been keen to dedicate money and resources into providing crypto payment services.
The ease-of-use of the Bakkt app combined with the involvement of high street companies like Starbucks should start to change the situation.
Lastly, ICE will leverage its vast experience in the markets to provide much better data to its customers.
That will include access to APIs, ticker feeds, reporting features that meet regulatory requirements, and various other agreements.
Combined, these features will further legitimize and professionalize the industry.
When Will Bakkt Be Available?
At the time of writing, Bakkt has an expected launch date of January 24, 2019. The company has already postponed date a couple of times; it could change again.
We covered some of the world’s other top crypto exchanges if you’d like to learn about different ways you can invest in the sector.