Bakkt is the biggest crypto news story of 2018 that nobody is paying attention to. While much of the community focuses on bitcoin ETF proposals, the real story could be with ambitious crypto startup Bakkt.
One person paying attention to Bakkt is Joakim Hjønnevåg. In a blog post this week, Joakim discussed what Bakkt could mean for bitcoin, including the impact that Bakkt could have on crypto moving forward. Joakim is the Blockchain Lead at Blockchain Warehouse, an Advisor at aXpire, and co-founder of ERC Swap.
So what does Bakkt mean for bitcoin? Here’s how Bakkt explains its mission on its official website, Bakkt.com:
“Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the blockchain.”
That all sounds good – but there are a number of startups seeking to provide similar services to the crypto and blockchain space. What makes Bakkt different?
The difference between Bakkt and its competitors is its backing: the startup is backed by some of America’s largest and most influential corporations.
Microsoft, Starbucks, and the Intercontinental Exchange Have Already Partnered with Bakkt
Bakkt is backed by a “who’s who” of American brands, corporations, and investors.
The Intercontinental Exchange (ICE), for example, is collaborating with Bakkt. ICE is the owner of the New York Stock Exchange (NYSE).
So yes, there are plenty of other blockchain startups out there, and many of them have similar goals to Bakkt. One of the key things that distinguishes Bakkt from the pack, however, is that it’s backed by some hugely influential names.
Bakkt is “The Breakthrough We’ve Been Looking for to Enable Bitcoin to Become Mainstream”
Joakim Hjønnevåg might have summed it up best when he argued that the release of Bakkt is “the breakthrough we’ve been looking for to enable bitcoin to become mainstream.”
Bakkt’s core product allows retail and institutional investors to more easily enter the blockchain space.
We already know how some corporations will integrate Bakkt. Starbucks, for example, will use Bakkt to accept bitcoin for in-store purchases.
One of the reasons ICE partnered with Bakkt is because it wants to transform bitcoin into a trusted global currency with broad usage. Earlier this year, Fortune ran a headline saying, “The NYSE’s owner wants to bring bitcoin to your 401(k). Are crypto credit cards next?”
Bakkt Could Pave the Way for a Bitcoin ETF
The SEC has rejected every bitcoin ETF proposal that has come across its desk to date.
Bakkt, however, could be the “missing link” that forces the SEC to adopt a bitcoin ETF.
One of the reasons the SEC has repeatedly rejected bitcoin ETFs is because regulators believe bitcoin is plagued by inefficient price formation: exchanges and large bitcoin holders can have a huge impact on the market, for example, and there’s not enough liquidity to balance out these effects. This means smaller investors are susceptible to price manipulation and other practices.
Bakkt could solve that problem.
Bakkt aims to solve key issues like price discovery using physical delivery: all bitcoin bought and sold on Bakkt’s platform will be “real” bitcoin. When you buy bitcoin from an exchange today, you don’t really “own” bitcoin until you withdraw it. Bakkt plans to fully collateralize and pre-fund all bitcoin to encourage efficient price discovery.
Here’s how the official Bakkt website explains it:
“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.”
Another key feature of Bakkt is the way it will allow bitcoin to be traded: bitcoin will not be able to be traded on margin or leverage, for example. Bakkt wants to establish its focus on finding a trusted price formation. This will make Bakkt inherently different from other institutions: Bakkt will actually trade bitcoin – they won’t just speculate on its price movements.
As Joakim Hjønnevåg writes,
“This is incredibly important and very good.”
Bakkt’s Three Goals
Bakkt plans to create trusted infrastructure for trading, storing, and spending digital currencies like bitcoin. In a blog post earlier this year, Bakkt CEO Kelly Loeffler stated that Bakkt needed three crucial components in order to achieve that goal:
- A consistent regulatory construct
- Transparent, efficient price discovery
- Institutional quality pre and post-trade infrastructure
If Bakkt can create a platform with those features, then it could revolutionize the crypto space.
How Will Bakkt Benefit Bitcoin?
More institutional involvement in bitcoin is generally seen as a good thing. Institutions develop better infrastructure surrounding bitcoin. They give added legitimacy to the currency. They encourage the creation of smarter crypto regulations.
Bakkt wants to add more than these three benefits to bitcoin. Bakkt has announced three key goals for bitcoin, including:
Moving retail payments away from credit cards and onto blockchain applications in order to make bitcoin a feasible, respected, and adopted means of payment within the economy
Provide the same protections for bitcoin as investors get with other assets, including stocks, bonds or commodities that would generally be traded on traditional markets
Open the gate for large amounts of institutional money to flow into the crypto space
Of course, some argue that institutional involvement in bitcoin isn’t good. They argue that as institutions get increasingly involved with bitcoin, it’s going to impact the decentralized currency in a negative way. Bitcoin has thrived since 2009 without the involvement of Wall Street. Why do we need financial institutions now?
What’s Next for Bakkt?
The next step for Bakkt is to launch its crypto onramp, something that it has scheduled for November 2018. The launch of that on-ramp could be one of the biggest moments of the year for the crypto community: overnight, it will become easier for institutional investors to participate in the crypto market.
Stay tuned to see what happens next for Bakkt. It could be the most important crypto startup in the industry.