Intercontinental Exchange, the parent company of NYSE, recently announced that they are building an exchange for digital assets called Bakkt. This is perhaps the biggest news of the mainstream financial markets validating the size and opportunity of crypto market in 2018.
ICE is working with some big names in technology, consulting and retail. Microsoft, Starbucks, BCG and other companies will help ICE create a platform to trade digital assets or popularly known as cryptocurrencies or cryptotokens.
What is Bakkt?
It is an integrated platform for trade of digital assets that will operate in federally regulated markets. Current focus of Bakkt will be conversion of Bitcoin into Fiat currencies. Targeting institutional, merchant and consumer segments, ICE not only aims to take crypto trading to a new level, but with the help of Starbucks, it also hopes to make Bitcoin and other digital assets spendable.
ICE also plans to offer a one-day “physical” delivery of Bitcoin futures contract which is a big relief for the institutional investors and solves the problem of custody to an extent.
“In bringing regulated, connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence in the asset class on a global scale, consistent with our track record of bringing transparency and trust to previously unregulated markets”, said Jeffrey C. Sprecher, Founder, Chairman and CEO of Intercontinental Exchange.
As anyone could guess, this is a huge credibility boost for crypto markets and especially for Bitcoin. This will bring in the institutional investors who have largely been opposed to the idea that Bitcoin holds any value or were largely on the fence till date.
Second advantage is that this will pressurise the regulators to develop a mature regulation because of the sheer amount of capital that is expected to be pumped in this market.
Third advantage of delivering physical Bitcoin futures contracts is that Bakkt will handle the custody of Bitcoins – which takes away the complexity of technology to an extent.
Experts on Wall Street have warned time and again about financialization of Bitcoin using leverage. This means an institution creates more financial claims – futures contracts – of an asset than the amount of asset they hold. This could happen because there is no other way Wall Street could control the Bitcoin network. But leveraging Bitcoin would also mean taking away the attribute of scarcity and hence the network itself might lose value making miners and hodlers to move to another crypto currency.
Futures that lay claim on these coins – whether Bitcoin or any other token – should be bound by the exact amount of coins held or funded in that coin and not the equivalent dollar value.
ICE announcement is a dream come true for any Bitcoin believer. But at the same time, there are mixed feelings about how Wall Street and institutional money will play the small investors and hodlers. Decentralisation has been the core strength of Bitcoin and the promised land for most crypto currencies out there. Any single entity controlling or manipulating the supply of a network could dampen the feelings of the hodlers, which is a zero sum game for everyone.