Bakkt is a company owned by ICE, the company that owns the New York Stock Exchange (NYSE), and its initiative aims to bring to the market futures covered by real bitcoins.
The name Bakkt itself is pronounced in a very similar way to backed, in reference to the backing of a currency or an asset.
In fact, the already existing bitcoin futures are not actually covered, or backed, by BTC.
They are contracts in US dollars, based on price indices, which at maturity are regulated in this currency.
Instead, those of Bakkt will be covered by real physical BTC. In other words, they will be contracts which, on expiry, will be settled in bitcoin and not in US dollars.
Whoever buys these contracts will actually buy bitcoin and the company that issues them will have to cover them with BTC.
The relationship will be so close that owning Bakkt’s future contracts will practically amount to owning bitcoin, even though it will not be possible to manage the individual BTCs independently.
The aim is to make sure that Bakkt’s futures can be exchanged for the same value as the underlying bitcoins and therefore, similarly to exchanging real BTCs.
What is Bakkt for?
Since bitcoin is not yet fully regulated, for many investors it is not a feasible option.
There are investors, especially institutional investors, who may be interested in investing in BTC, but who by law can not do so because they are forced to invest only in regulated assets.
Bakkt’s futures will be fully regulated and fully compliant with US regulations, thus allowing institutional investors to invest in this sector as well.
In addition, a very difficult problem to address and resolve, especially for those who want to hold large sums of money in BTC, is that of safekeeping.
As a futures contract, Bakkt actually solves this problem for its customers.
Bakkt, in fact, also allows investing in bitcoin in complete safety without having to worry about the storage of BTCs, because this is the direct responsibility of the company.
The consequences on the crypto market
Bakkt, in order to be able to offer their future contracts backed by physical bitcoins, needs to purchase BTC before they can put them on the market.
This means that, before they can even land on the market, they will have to buy large quantities of bitcoins depending on how many future contracts they have are going to sell.
The main consequence could be another: the injection of large quantities of capital from institutional investors, which are now de facto excluded from this market.
It is not absolutely certain that this will happen, and we do not know the potential size of the phenomenon, but if a company like ICE has decided to engage in this initiative it is probably because they have done their research.
The objective of this initiative is precisely to attract large capital from institutional investors, which, if they actually arrive, could increase the demand for BTC, since to be able to sell future contracts, Bakkt must first be in possession of a sufficient number of bitcoins to cover them.
This, for example, does not apply to the current futures that are not covered by BTC, so the impact of Bakkt’s futures could be very different from that of existing bitcoin futures.
Moreover, by using traditional futures trading markets, in addition to a proprietary platform, there is considerable scalability for both US dollar/bitcoin trading and potentially for BTC payments.
That is, while the bitcoins on which Bakkt’s futures will be based will always remain stationary in the company’s wallets, futures contracts can be exchanged easily and quickly even as if they were cash anchored to the value of BTC.
However, it should be remembered that, given the target of the initiative, this probably does not mean that these assets will also be used to “pay for coffee“.
Will Bakkt’s futures be approved? When will they go live?
Futures issued in the US financial markets must be approved by the CFTC.
This approval for Bakkt’s futures has not yet arrived, but the company has stated that they are working closely with the CFTC to obtain approval.
However, the CFTC itself has already approved two more bitcoin-based futures in the US in the past, although not backed by physical bitcoins, so it is difficult to imagine that it could reject Bakkt’s application unless the company’s failings are blatant.
The same company stated that it would be planning to release its futures on the market at the end of January 2019, so this for now is the deadline for the project.
It should be remembered, however, that this deadline has already been postponed once, so it would not be too much of a surprise if it were to be postponed a second time.
Who’s behind Bakkt
Bakkt is a company owned by the Intercontinental Exchange (ICE), whose founder, Jeffrey Sprecher, is a true lover of technological innovation.
Sprecher’s wife, Kelly Loeffler, is in charge of the company, so this is a traditional financial initiative, perfectly integrated into classic global financial markets.
Moreover, not only does it come from that sector, but it is also aimed at a target composed of a very large majority of classic, traditional and even institutional investors.
This means that it is not a decentralised project or one that aims to subvert the rules of traditional finance: on the contrary, it is a centralised project that aims to allow traditional finance to take advantage of the opportunities of the crypto sector.
Will Bakkt also offer XRP (Ripple)?
Not yet. When it lands on the market it will do so only and exclusively with futures on bitcoin.
However, the company has already made it known that, later on, it could add Ethereum and maybe even XRP or other cryptocurrencies.
For now, being bitcoin the most liquid and widely distributed cryptocurrency in the world, and having analysed that their customers’ demand was for now limited to BTC, they have decided to consider other additional contracts as the landscape evolves and will receive further feedback from their customers.
