Bakkt cleared to launch 23 September to provide “a trusted ecosystem”
With recession fears looming and the Bitcoin narrative still strong, Bakkt's launch is well-timed.
The highly-anticipated Bakkt platform is cleared to launch 23 September, it says. It has previously received the green light from the CFTC for its contracts, through a self-certification process. Then on 16 August, it received approval from the New York State Department of Financial Services (DFS) to create Bakkt Trust Company, which will serve as the custodian for the Bitcoin in Bakkt's physically-delivered Bitcoin futures.
"As the financial services industry rapidly evolves, DFS will be at the forefront of fostering a sound, regulatory environment that continues to uphold New York as the premier place to do business, while protecting consumers and markets," said DFS superintendent Linda Lacewell in granting the approval. "This approval demonstrates New York’s competitiveness as a hub of innovation and leadership in emerging technologies."
"With the comprehensive regulatory review and approval of Bakkt Trust Company complete, we are pleased to serve as a qualified custodian of Bitcoin for physically delivered futures," said Adam White, Chief Operating Officer of Bakkt. "We appreciate the work that the DFS has undertaken to bring a standardized regulatory framework to digital assets, particularly in the area of secure custody. This now enables us to offer institutional-grade custody via the Bakkt Warehouse alongside the federally regulated Bakkt Bitcoin Futures contracts."
What this means for Bitcoin
"Providing a trusted ecosystem is our first objective. To do that we are setting a higher standard, including an institutional compliance and anti-money laundering program, settlement prices that are distinct from unregulated spot prices, comprehensive market oversight, a guaranty fund contribution and insurance. The trading and risk management tools that make all of this possible have been centuries in the making," Bakkt says.
"Uniquely, Bakkt Bitcoin futures contracts will not rely upon unregulated spot markets for settlement prices, thus serving as a transparent price discovery mechanism for the benchmark price for Bitcoin," Bakkt's launch announcement explains. "The importance of this differentiator is only amplified by reports of significant manipulative spot market activity, and other concerns such as inconsistent anti-money-laundering policies and weak compliance controls."
This could go either way for Bitcoin.
On the one hand, Bakkt could prove to be an excellent venue for people to put more money into Bitcoin, with the confidence that they're paying a fair price for an asset whose chief purpose is to be a functionless store of value. This influx of money could bolster prices.
This effect could then be magnified by helping pave the way for the approval of Bitcoin exchange traded funds (ETFs).
Bitcoin ETFs have been consistently rejected on account of the markets being so heavily manipulated, and it being almost impossible to find a transparent price for the stuff among so much wash trading. With Bakkt arriving and presenting the actual price on a real, tightly-regulated market, Bitcoin ETF providers have a source for clean, unadulterated price data on which to value their products.
The theory is that Bitcoin ETF approval could lead to massive investor interest in Bitcoin, by making it easy for anyone to own a chunk of physical Bitcoin through an ETF without actually needing to worry about the custodial issues of buying and holding Bitcoin.
The same thing happened with gold prices, it's thought. Gold bars are heavy and security is expensive, hence why ETFs make it much easier for anyone to own gold. The first gold ETF was introduced in 2003 with about US$200,000 in assets under management (AUM), and gold prices of around $330 an ounce. A decade later, gold ETFs had about $132 billion AUM, and prices grew to about $1,600 an ounce.
If you assume Bitcoin follows the same trajectory for the same reasons, Bitcoin prices could multiply in the coming years.
On the other hand, it could be that Bakkt launches only to prove what Bitcoin's harshest critics have been saying all along; that no one wants it and no one uses it for anything other than money laundering, gambling and black market purchases. If Bakkt flops, it could be Bitcoin's death knell by conclusively proving those critics right. Wash trading can cover a multitude of sins, and it remains to be seen what will be left of cryptocurrency markets once you take it away.
But hey, Bakkt wouldn't be going to all this trouble if there weren't at least a few very serious people very seriously interested in Bitcoin, and the explosion of gold over the last couple of decades (and millennia) has made it clear that people have an extremely high tolerance for functionally useless assets.
At the same time, with the world staring down the barrel of a
potential possible probable very likely recession, right now is a likely time for people to start exploring uncorrelated asset classes like Bitcoin.
In that respect, Bakkt's launch is very well-timed indeed.
Disclosure: The author holds BNB and BTC at the time of writing.