One of the biggest news in recent weeks is the partnership between Microsoft, Starbucks, and Intercontinental Exchange which is the owner of New York Stock Exchange. The venture is called Bakkt. This could potentially give the crypto industry the legitimacy that it is looking for and could actually get institutional investors into action. However, there are those that are concerned regarding this move. a Wall Street veteran mentioned that “financialization of Bitcoin” can provide different things coming from fractional reserve banking system into the crypto market.
Bakkt CEO Kelly Loeffler mentioned that one of the priorities of Bakkt is to promote “efficient price discovery”. What it means is that Bakkt will not allow clients to trade on margin. This means that clients are not able to put a “paper claim” on the digital asset.
She wrote that “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.”
The Bitcoin contract will simply be a one-day futures contract. It is going to be settled in BTC and not cash. Why have a one-day futures contract in the first place? The reason for this is that the BTC/USD trading pair is going to be regulated by the Commodity Futures Trading Commission (CFTC) rather than the US Securities and Exchange Commission. According to the rules of CFTC, Bakkt should have a warehouse to store the physical assets.
Tom Lee on Bakkt
Fundstrat’s Tom Lee is quite optimistic when it comes to the upcoming digital asset platform. In fact, he pointed out the difference that Bakkt makes compared to Coinbase and Binance. Also, there are the likes of Garret See of DV Chain investment firm. According to him, physically settled Bitcoin futures could facilitate better arbitrate trades. And also, this can be less risky for investors.
Criticism on Bakkt
Caitlin Long is quite pleased regarding the statement released by Bakkt. However, she noted that the post was silent regarding what is called as “hidden leverage”. What hidden leverage does is allow institutions to commingle and rehypothecate collaterals. It involves substituting these collaterals for one another.
These are some things that can taint Bitcoin as a cryptocurrency considering that these are standard actions on Wall Street.
Many are anticipating institutional investors to enter the picture. But could this really attract institutional investors? Could this be the only way that we will be able to see Bitcoin and other cryptocurrencies recover from a bearish market? Is it going to be the same Bitcoin?
If you are going to ask Andreas Antonopoulos, he thinks that a Bitcoin ETF will not give us the same type of Bitcoin that investors knew. Could Bakkt actually give a tint of Wall Street on a cryptocurrency?