By On Tuesday 25 September 2018 Bakkt, the Intercontinental Exchange (ICE) cryptocurrency platform, announced that its first offering will be physically delivered Bitcoin futures contracts as opposed to fiat currencies. These futures will be offered against the following fiat currencies namely, the US dollar, the British pound and the Euro. Bakkt has confirmed that by buying one USD/BTC future contract the result will be the daily delivery of one Bitcoin into the customer’s account.
This announcement is in line with Bakkt’s previous statement made by CEO Kelly Loeffler in August 2018 in which Loeffler stated that Bakkt was “designed to bring digital assets to the mainstream and help unlock the potential of this important technology.” Bakkt, Loeffler confirmed, would be a cryptocurrency platform that realized the wider application of digital assets by offering transactions for the average consumer and for investors looking for federally regulated, institutional trading and security solutions.
According to Loeffler, Bakkt was designed to address the need for a trusted infrastructure for trading, storing and spending digital currencies. The framework that underpins the cryptocurrency exchange is a consistent regulatory construct and transparent, efficient price discovery as well as an institutional quality pre- and post-trade infrastructure.
Bitcoin is Fully Collateralized or Pre-Funded
Bakkt, which was only recently unveiled by the ICE, is proposed to be a regulated global ecosystem for digital assets. This platform will offer investors, merchants and consumers the opportunity to buy, sell and store digital assets which will ultimately allow users to spend cryptocurrency on a seamless global network. The ICE confirmed that Bakkt’s first use case will be Bitcoin due to the fact that Bitcoin is, at present, the most liquid digital currency.
Loeffler emphasized that “trusted price formation is a fundamental part of advancing the promise of digital currencies”. As the crucial element to price discovery is that of actual physical delivery Bakkt offers a solution in which the buying and selling of Bitcoin is fully collateralized or pre-funded. Essentially this means that Bakkt’s daily Bitcoin contract “will not be traded on margin, use leverage, or serve to create a paper claim on a real asset”. Instead, in purchasing one Bitcoin futures contract, the purchaser will physical receive one Bitcoin into their account. This offering will be supported by a secure and regulated warehouse solution which will enable users to take advantage of Bakkt’s promise to physically deliver Bitcoin.
It is this solution which differentiates Bakkt from other existing cryptocurrency platforms which cater for margin, leverage and cash settlements. It is also this solution which Loeffler believes will support market integrity and encourage more consumers and institutions to participate in a digital asset class.
Expectations and Anticipation
Bakkt’s proposed launch in November of this year has garnered much anticipation within the crypto community. Although there has been some concern as to the potentially adverse effect of futures trading, many within the crypto community have welcomed the detailed confirmation of the proposed offering by Bakkt.
There is much anticipation within the crypto community surrounding Bitcoin exchange-traded funds (ETFs) which are still awaiting approval from US regulators. Although Bakkt’s solution differs considerably from ETFs in that Bakkt’s offering actually gives users physical delivery of the asset, whereas with ETFs users do not take delivery of any Bitcoin, the confirmation of Bakkt’s 1-day physically delivered Bitcoin contract and physical warehousing is thought to offer a certain amount satisfaction for the market’s strong appetite for innovation.
Will Bakkt be the next big step in realizing a global economy based on digital assets? Give us your thoughts in the comments below.
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