08 Oct Could Bakkt Cause A Bull Run?
Bakkt revealed the first crypto product as physical bitcoin futures. Will that be the trigger for the big bitcoin bull run?
On the 3rd of August, Intercontinental Exchange (ICE) announced the launch of a cryptocurrency/digital asset platform dubbed Bakkt. The project, which is backed by A-list firms like Microsoft, BCG, and Starbucks will provide a “scalable on-ramp for institutional, merchant and consumer participation in digital assets by promoting greater efficiency, security, and utility.”
The announcement traveled like wildfire through the crypto space as experts, analysts and investors in the crypto community eulogized the development. As such, I shall be taking you through the importance of this development to the crypto space. But first, let’s shed light on the corporation behind the project.
Who Is Intercontinental Exchanges (ICE)?
International Exchanges (ICE) operates 23 regulated exchanges and 6 clearing house across the world. In particular, ICE owns the New York Stock Exchange and it is regarded as the ‘’world’s largest owner of exchanges”.
What is Bakkt?
ICE’s Bakkt is a platform that will allow institutional investors to access and utilize cryptocurrencies. In addition, the platform will function as a bitcoin warehouse while also featuring the one-day bitcoin futures. Therefore, Bakkt will acquire physical bitcoin that will be the underlying asset to its bitcoin futures.
This would eliminate the need for investors to set up wallets and run crypto exchange accounts. In addition, an official announcement from Bakkt revealed that unlike existing bitcoin futures contracts, Bakkt will not be offering its users marginal trading features neither will it use leverage.
Why Is Bakkt Relevant To the Cryptocurrency Space?
The crypto space is constantly pushing for the mainstream adoption of digital assets, as such, the introduction of a Bakkt is seen as a major step toward achieving this.
Bakkt’s introduction will specially cater to traditional investors that still question the complexity of the crypto market.
The relentless marketing of the crypto market to new investors have contributed to the growth of the market over the years. However, it has become obvious that the crypto space needs to up its game in order to lure the big players to join the market.
There is a need for platforms that will serve as secured and simplified access points to the crypto market. This is one of the reasons the crypto space has flirted with the idea of a crypto ETF for a while now. In many ways, Bakkt is designed to serve as a launch pad for cryptocurrency to achieve mainstream status.
Eventually, Bakkt will become the gateway and an entry point for institutional investors. And when this happens, the crypto space will have access to more funds to research and develop innovative applications of cryptocurrency.
In addition, there is a lingering speculation that the crypto market is susceptible to price manipulations. Recent reports suggest that investors are utilizing bots to manipulate the price of bitcoin. This is called “spoofing” and it is outlawed in US stocks and futures.
Another concept that has dented the image of the crypto market is the “pump and dump” schemes wildly utilized by some investors. These are some of the factors that are restricting the approval of a cryptocurrency ETFs.
In many of the bitcoin rejection order released by the US Securities and Exchange Commission (SEC), the inability of applicants to prove that the crypto market is free from price manipulations was highlighted.
However, the introduction of Bakkt, which will usher in outside investments will to an extent correct the susceptibility of the market to manipulations.
ICE also offers a level of liquidity that even the current largest crypto exchange cannot match.
The exchange controls total assets worth $78 billion and a revenue of $5.83 billion. All these are signs that Bakkt could trigger the next bull run of the crypto market.
Cryptocurrency Product as Physical Bitcoin Futures
Following the launch of Bakkt, the platform announced:
“Our first contracts will be a physically delivered bitcoin futures contract versus fiat currencies, include USD, GBP, and EUR”.
In addition, the announcement revealed that the purchase of one USD/h2TC futures contract will make an investor entitled to a daily delivery of one bitcoin.
This reiterates the announcement made in August that the platform will not be offering “paper claims on real assets.” As such, Bakkt will directly trade bitcoin.
Why Does This Matter?
I mentioned earlier that Bakkt is backed by A-list names like Microsoft, Starbucks, and BCG. Therefore, the introduction of physically delivered bitcoin futures could fast-track the adoption of bitcoin as a medium of payment.
In addition, institutional investors will directly be involved with bitcoin as each contract purchased entitles them to a physical bitcoin, which to an extent guarantees the viability of bitcoin.
This development could also shield bitcoin from price manipulations which is one of the major limitations of the crypto market.
Bakkt versus Crypto ETF
Bakkt is basically a crypto exchange that acts as a middleman between institutional investors and the crypto market. As earlier mentioned, the platform will physically buy and warehouse bitcoin, which is a different approach from many of the proposed plans of Bitcoin ETFs.
Majority of Bitcoin ETF- except VanEck SolidX bitcoin ETF- are planning on relying on bitcoin futures markets and derivatives. As such, Bakkt will be making more impact on the crypto market.
In addition, Bakkt’s owner, ICE is heavily connected to powerful brands therefore, Bakkt is likely going to pull more investors into the crypto market. One such brand is Starbucks, which is already planning on adopting bitcoin through Bakkt’s platform.
Lastly, analysts believe that the approval of CFTC in November will likely usher in Bitcoin ETFs as Bakkt has already resolved two of the issues limiting the approval of 9 Bitcoin ETFs applications. These two issues are:
- The dependence of Bitcoin Etf on the futures markets and derivatives
- The inability of Bitcoin ETF to find “trusted price formations”
The crypto space has witnessed many developments this year, and the introduction of Bakkt is proving to be the biggest.
I am sure that the approval or disapproval of Bakkt by the CFTC in November will send shockwaves across the market, as such, investors are advised to stay informed.
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