Bakkt CEO: It’s time to put a price tag on bitcoin as a hard asset
As antithetical to crypto as it may be, this might need trusted parties and "physical" bitcoin solutions.
The role of trusted elements in cryptocurrency has always been a contentious one. Bitcoin got its start as a tool for decentralisation, intended to remove trusted elements from the equation and cut out middlemen wherever possible.
At the same time, decentralisation is really, really hard and expensive, and trusted middlemen like centralised exchanges have insinuated themselves into cryptocurrency by necessity. It's a dirty job but someone's got to do it runs one line of thinking. And it's an impossible and self-defeating compromise to be avoided runs another.
Bakkt CEO Kelly Loeffler is of the former opinion, a recent Medium blog post suggests. And she's in a better position to get the last word than most. Bakkt is an upcoming crypto-asset exchange, operated by Intercontinental Exchange and launching with pre-made partnerships with big names like Starbucks and Microsoft. Its goal is to unlock the potential of crypto-assets for everyone, by creating a system that can actually work within established financial norms and see uptake by big brands.
The most important first step might be to, as a trusted entity, put a clear price tag on bitcoin as a hard digital asset.
"The response to our news [of the Bakkt launch] worldwide was very strong," Loeffler writes. "The credit for that goes in large part, to a premier group of partners and the vision for Bakkt we collaborated on for months. Equally important is the widespread need we're hearing for trusted infrastructure for trading, storing and spending digital currencies."
Bitcoin's original vision may have been for everyone to be their own bank, to cut out middlemen and to create a network that doesn't depend on trusting anyone. But for it to ever get there, it looks like it's going to have to go through trusted intermediaries like Bakkt.
It might be high time too. Price manipulation accusations and uncertainties around how much money is really in the space, and how much cryptocurrencies are actually worth, have dogged the industry for years now. Arguably, this kind of manipulation was good for bitcoin and its owners at first, drawing attention to the potential of the technology and making a lot of cypherpunks and former drug dealers extremely rich. But for bitcoin to get much further, it might need to start standing on its own two feet, being physically delivered and valued (or not) in and of itself.
This element of "price discovery" – being able to put a real value (or not) on bitcoin as an asset, and the functionality of its underlying network, is an essential step that only a handful of institutions have the reputation to provide. Intercontinental Exchange, operator Bakkt, the New York Stock Exchange and many more, might be one of them.
"The concept of "price discovery" might sound bland for something as exciting as bitcoin," Loeffler writes. "However, trusted price formation is a fundamental part of advancing the promise of digital currencies."
By ensuring straightforward physical delivery of bitcoin, blocking off margin trading and disallowing cash settlement, Bakkt is deliberately making steps to test the real demand for actual bitcoin as a hard asset.
"A critical element to price discovery is physical delivery. Specifically, with our solution, the buying and selling of Bitcoin is fully collateralized or 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. Coupled with a secure, regulated warehouse solution, you can begin to see how this market infrastructure can help more institutions and consumers participate in the asset class."
All signs point to a strong appetite for bitcoin specifically, and exposure to this new technological cutting edge more broadly Loeffler says.
"There are numerous reports that venture investing, initial coin offerings, and corporate R&D related to blockchain and digital assets are all on track to surpass 2017 levels," she writes. "With the potential for efficiency and innovation, the focus on new applications and infrastructure indicates a strong appetite for this market and technology."
But it's all still a bit uncertain, and it's hard to put a fair value on all these new offerings when they're largely funded with bitcoin and Ether, and when the markets in general are still closely tethered to bitcoin prices. Putting a hard price tag on bitcoin, minus the wishy-washy derivatives and options, is a solid first step for Bakkt.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.
- Ethereum price: Massive slide as market faces bearish pressure
- Ethereum 2.0: Roadmap, timeline and implications
- Bitcoin falls to US$34,000 as confidence in money markets improves with the Biden inauguration
- Bitcoin price lags while regulators raise fears and banks grapple
- Bitcoin price sees volatility around $37,000 with Pantera Capital projecting $115,000