ICE’s “Bakkt” Might Bring Poor Banking Practices To Crypto Ecosystem
Intercontinental Exchange [ICE] recently announced the development of ‘Bakkt’ which Wall Street professional considers a concerning factor. A Wall Street veteran, Caitlin Long with previous experience at pension solutions of Morgan Stanley for 22 years has expressed her views on this issue in an article.
Long has stated that the development of ‘Bakkt plans’ by ICE, the operator of New York Stock Exchange would not only launch a brand new Bitcoin market but also beckon bad practices to the domain of cryptocurrency.
Positives of Bakkt Launch
Long spoke on financialization in crypto, describing two forms of financialization, one of which improves liquidity through new investors like institutional investors and is beneficial to the crypto space.
“This is a major step in the mainstreaming of bitcoin and cryptocurrencies. But it’s also a double-edged sword because it’s likely the beginning of Wall Street creating financial claims to bitcoin out of thin air (and not backed by actual bitcoins), which could offset some of Bitcoin’s algorithmically-enforced scarcity. Perhaps that’s why bitcoin’s price declined slightly after today’s announcement by ICE.”
Some of the other advantages are as follows:
- attracting institutional investors to cryptocurrencies
- solve the custody problem that has kept many institutional investors in the sidelines all along. Now there is a qualified custodian which the SEC requires for investment advisers that manage $150 Million or more
- help regulators become more comfortable with the sector once they see ICE involved
- it will attract corporate issuers to raise capital using the Bakkt ecosystem. Cryptocurrencies offer issuers the prospect of covenant-free and preference-free capital at low cost
Negatives of Bakkt Launch
“Wall Street’s only shot at controlling cryptocurrencies is to financialize them via leverage—by creating more financial claims to the coins than there are underlying coins and thereby influencing the underlying coin prices via derivatives markets. Financial institutions [will begin] to create claims against cryptocurrencies that are not fully backed by the underlying coins (which could take the form of margin loans, coin lending/rehypothecation, coin-settled futures contracts, or ETFs that don’t 100% track the underlying coins at any given moment). None of these are happening in the market yet, though.”
Long fears that ICE, the owner of the New York Stock Exchange (NYSE), will be a key player in the financialization of Bitcoin and other cryptocurrencies, and that the results may not be pretty. ICE will be launching a physically-backed bitcoin futures contract, as well as a full-featured “bitcoin market.”
She didn’t mince words when it came to the statements made by ICE CEO Jeffrey Sprecher, stating that he doesn’t have a good understanding of the cryptocurrency.
“It was odd for the CEO to talk about bringing trust and transparency to Bitcoin, when Bitcoin doesn’t need either because it has already achieved both.”
Long did conclude on a positive note, giving credit to HODLers.
“There’s reason to be optimistic, thanks to HODLers, because bitcoin is an equity-based asset that can only be financialized if holders bring their coins into the financial system.
Bitcoin already has trust and transparency precisely because no centralized institution controls it. Thankfully, for existing bitcoin investors, HODLers are likely to make that difficult by storing most bitcoins outside of the financial system and making it the epitome of hard to borrow.”
If what I’m understanding about BAKKT is that I can buy BTC direct on my discount brokerage, alongside my stock portfolio, it makes the ETF completely redundant. This news is absolutely earth shattering. Any mutual/hedge fund could easily add a BTC allocation alongside equities.
— Parabolic Trav (@parabolictrav) August 5, 2018