Analyzing Bakkt’s Bitcoin Futures Exchange Value and Its Push Towards Global Adoption
Bakkt is easily one of the biggest forthcoming crypto-market components on the wait list and has arguably been the most highly-anticipated launch out of any new entity entering the industry. While everyone remains extremely bullish about what Bakkt can do to the price of bitcoin, let's take a minute to analyze how the ICE-backed bitcoin futures exchange can help become one of the global catalysts cryptoassets need to reach mainstream adoption use.
Looking at Bakkt – Is it the Future of Mainstream Bitcoin Adoption?
Money, as an entity has been undergoing a long and steady history of gradual re-interpretation and even steadier evolution, as we've been seeing in the past century. When we first began to see some system of monetary exchange, there was no uniformity to it – with Greek city-states using anything from metal spears (obols), large circular rocks, to iron (Sparta), silver and gold in various quantities.
Before this, there was not so much a monetary system as one of exchange and bartering. What money did differently was allow for communities to evolve beyond trading for subsistence, to trading for profit, and this is the legacy that we work with to this day.
The time when we really started to see dramatic change was over the 20th century – moving away from a stable (seeming) backing of precious metal, to seeking out a more stable medium for the international exchange of goods and capital. The underlying concept is a constant, however – currencies are held in a varying quantity in each country so an exchange of other fiat or goods can take place on an international level without going through the process of printing more.
One of the new advents we saw in the world of money was the technological revolution presented during the financial crisis of 2008/9. This, of course, is regarding the publication of the white paper for Bitcoin back in 2009 by Satoshi Nakamoto, which swept the internet like a proverbial dark horse of the convention currency world – proposing a new, digitalized, and (seemingly) anonymous approach towards cross-border payments.
This very real dark horse has all of the potential to massively disrupt and reform the approach towards exchange on an international level. But while there are a great number of facets where currencies are currently being put to use, Bitcoin hasn't managed to take over the world and set it ablaze for a number of reasons.
Ten years on from this publication, and the cryptocurrency space is still undergoing an uphill struggle in order to make itself known as a potentially powerful quantity and alternative to the already existing financial system. It still struggles to catch up with the likes of commercial payment solutions, especially those that have been in the institutional trading game for a long time. To solve this issue, while simultaneously seeing the value of Bitcoin increase to its previously seen high-points in value – we need to see that it is being adopted in a meaningful way. With a real-use case, we can see it begin to really create value both for Bitcoin, and for the international commercial world.
We are already seeing a good degree of traction from major, multinational corporations putting cryptocurrencies to good use through a number of projects. We see this with companies such as JP Morgan Chase with its Quorum blockchain and JPM Coin, and Fidelity. While each of these projects demonstrate profound strides in application of crypto into their business models, they still have to deal with a wide range of issues – these being technically based and ensuring that they operate in accordance to regulatory practices.
One of the companies that is striving to provide a real meaningful real use case for cryptocurrency in the institutional world is Bakkt – which operates as digital asset platform which operates in complete compliance with regulations. This platform also provides investors with ample access to services including custodies, futures contracts, as well as payments as created by one of the prominent entrepreneurs when it comes to traditional trading exchanges. This, of course, is Jeffrey C. Sprecher, the founder of the owning company behind the New York Stock Exchange (NYSE) – The Intercontinental Exchange (ICE).
The underlying objective of Bakkt is to improve and, overall, foster a greater level of the adoption of Bitcoin by providing exposure to real Bitcoin within the trading apparatus of a globally recognized and well trusted platform. We will be going more into depth about why exactly Bakkt is such a crucial player for the industry, and what may be some of its current outstanding issues.
The Present's Futures – How are They Settled?
When there are deals being struck between users which involve commodities to some extent, there is conventionally an agreement that is made between the range of parties on some pre-existing terms. In accordance with this agreement, these same parties go on to define the kinds of responsibilities that they would be undertaking – such as providing or purchasing goods within a certain point of time.
So where doe Futures contracts come into play? They specifically come in whenever there is a failure on the part of one side of the agreement to adhere to their responsibilities, or suddenly decide to pull out of the commitment due to a change in the circumstances – such as if there was a drastic change in the price.
These futures contracts operates as an immediate obligation for some of the involved parties to provide some kind of good or service to one or many other parties to buy / sell it at a specific price during another time in the foreseeable future. In using these kinds of contracts with small increments, suppliers and potential buyers can move in and out of existing deals relating to commodities and various assets through purchasing futures contracts on an exchange.
In providing this kind of service, it assures each respective party a good degree of freedom and security within the marketplace. Allowing for the removal or transference of risk and rewards onto a professionally regulated third party.
When it comes to the world of stocks, futures have an added function of being put to use as a hedge against any foreseeable volatility in the market / asset that the investor is getting involved with. We do have to bear in mind, however, that there are some fundamental differences in the way that they operate. For example – if a futures contract was secured between a large estate farmer and factory to provide milk, the factory would then adhere to the contract by delivering on the specified good/s set out in the futures contract.
When it comes to stocks, you ideally don't want to have any involvement in physical delivery, as a futures contract is a means of hedging against the future forecasted price of the asset rather than immediately making good on it. It's in this case that, once the contract has been fulfilled and subsequently expired, that the various parties would get the difference in price. This is what we refer to as a ‘cash settlement,' and this is very much the state of play for investors in the world of Bitcoin Futures as we know it right now.
The Proposition of Value – The View From Bakkt
Even just on a surface level reading of the company by its name, for example. Bakkt, as we can tell, has a striking resemblance to ‘Backed.' The underlying objective of Bakt is to provide some solid backing for Bitcoin futures, doing so by backing them with actual virtual currencies.
According to Bakkt's founder, Jeff Sprecher and Kelly Loeffler, his wife, who work together within this project, they believe that this would increase the rate of adoption by institutional investors and organizations, especially for the commercial and international finance.
This is something that we can see with Bakkt's secured partnerships with the likes of Microsoft and Starbucks. This gives the encouraging implication that, once the platform is up and operational, that customers to boh Microsoft and Starbucks would be able to use Bitcoin as a medium of payment, much in the same way as is currently possible through VISA and Mastercard.
This will have an immediate knock on effect of increasing the underlying demand for virtual currencies, which will respectively increase the price and value of these cryptos, and draw in even more users to the ecosystem.
In order to get started on a good note with its platform, Bakkt will be placing a special focus on institutional investors, which are larger, far more established ecosystem that is unable to invest in a virtual asset unless it can provide some strong adherence to regulatory policies. If cryptos cannot do this, then it has no hope of uplifting its value.
In addition to these regulatory needs, institutional investors need for there to be a thorough and yet simple to understand system for buying, selling and subsequently securing these crypto-assets with a dedicated custodial service, the latter of which is responsible for the safe storage of funds. When it comes to the application of Bakkt, institutional investors will be able to purchase a futures contract through this decentralized platform, allowing for them to actually receive its investment worth of crypto-assets.
In addition to this, Bakkt also has the potential to provide clearing and custodial services which, in combination with the kind of reputation and authority provided thanks to ICE's position within Wall Street, investors get an exceptional blend for investors and institutions. When we take into consideration the kind of trading volume that institutional investors are responsible for within the Over The Counter trading sector, we can surely conclude that this entire process requires a monumental amount of Bitcoin in order to eloquently function.
It's because of this supply and demand that we can conclude that this will result in greater scarcity of the asset, leading to an increased speculative interest from investors, spiking the kind of interest in futures contracts too.
Once Bakkt has these kinds of institutional investors and companies onboarded within this ecosystem, the company plans to provide access to Bitcoin for retail companies and consumers of all kinds. It is hoped that, in the future, that Bakkt will enable for consumers to buy anything from a cup of coffee to digital hardware with Bitcoin, while also making it a far faster process in spite of the kinds of confirmation times which come with BTC.
What this equals is real and meaningful adoption, allowing for Bitcoin to be used on a larger and more extensive scale.
The Kind of Roadblocks Ahead
If Bakkt's system of Bitcoin settled futures contracts are such an ideal system for the market, and the company has been gaining some significant traction, why exactly is it . that it's not in operation at the moment. This comes back to the Commodity Futures Trading Commission (CFTC), which has been a point of struggle for the Bakkt team, according to Mr Sprecher, as he discusses the kind of consensus that has to be reached between the company and the CFTC.
Initially, Bakkt was originally scheduled to launch as of December 24th, but has underwent some serious delays on two occasions, pushing back the release date to 2019, with no launch being set in stone yet. For the CFTC, this makes perfect sense – bringing a brand new asset to a financial system is a major task that needs to be done properly and in accordance to regulation. If this isn't achieved, then Bitcoin would suffer from the invisible hand of bad investments such as hidden leverage.
Along with this, crypto regulation is still undergoing the early stages of application and, as a result, is still in a state of infancy. With this being the case, it's not made completely clear about how they . should be treated in many instances. And while ICE is already a known quantity in the eyes of the . CFTC, and can effectively self-certify its range of products and services, the CFTC still holds the upper hand, as the final decision maker – determining whether these kinds of products can exist or not.
While there needs to be a firm understanding between the two entities, there are very few details regarding the kind of progress to the application of Bakkt to the CFTC, according to the company. There are a number of sources out there tht state that this delay is due to the additional checks that Bakkt is facing with regards to the custodial services that it provides for clients.
One of these, for example, is the underlying requirement from the CFTC that money placed in clearing needs to be kept within a trust company of banking institution, due in large part to the kind of volatility in price that Bitcoin is subject to. When it comes to these same clearing houses, not only do the have to be trusted companies, but they also have to be welcoming of the kind of market volatility that Bitcoin is exposed to. These clearing entities have to be comfortable with taking these kinds of risks. Regardless, Sprecher and Loeffler are very much of the experience and skill in order to effectively work with these clearing entities and regulatory bodies in order to sort this all out.
So, In Summary
Overall, there is a significant amount of potential and power that Bitcoin can unlock within a wide range of areas. From transforming the international economy and world of finance, to providing a means by which the world's unbanked can obtain, save money and improve their quality of life. However, with this potential, there is still the fundamental challenge that lies ahead, and that is in encouraging and pushing mass adoption.
The more people that come to see the value and applications of Bitcoin, the more that will want to put it to use in their daily lives. The more it's used, the more stores and companies that will see the value in incorporating it as a means of commercial transaction.
It has been a considerably small window of time that cryptocurrencies have been around for. Spanning only a single decade as of right now, and with that – there are only a small number of people that make use of it in this period of time. While the amount that hold and put it to some level of use is steadily increasing, there . is still a vast majority of the population that are otherwise oblivious to the technology, with others being turned off by the kind of price ebbs and flows that are being seen right now in the crypto market.
This is where companies like Bakkt hope to bridge the gap, and dispel some of the popular myths that exist about cryptocurrencies. Bakkt offers some innovative solutions in order to make this happen, while also creating a highly secure and trustworthy platform for institutional investors, companies as well as allowing for retail giants to make use of bitcoin investments that are actually backed with real crypto.
Bakkt, once it proves capable of launching, will appear to be the ultimate kind of solutions that institutions and maximalists have been looking for. Providing a place for investors to get a hold of crypto assets that are fully regulated and supported by a highly secure and legitimate network of services.
It should be mentioned that, while Bakkt does represent one of the game-changing startup companies out there. It has some major obstacles to navigate, and a long way to go before it can get up and started, and subsequently placed into the hands of investors. The biggest roadblock is, of course, regulatory and governmental agencies such as the Securities and Exchange Commission, and the Commodities and Futures Trading Commission. Until startups like Bakkt can be raised up by these governmental bodies, there have to be other ways in which to promote Bitcoin.
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