Understanding Bitcoin Exchange-Traded Funds (Crypto ETFs) And BAKKT Differences
Most of the youthful investors are interested in cryptocurrencies. To put this into perspective, owning Bitcoin in December 2017 was deemed ‘cool'. Moreover, this asset class is still popular with the younger population despite its dismal performances since the beginning of the year.
However, these crypto investors see themselves entangled in a situation they cannot extricate themselves from. Still, a considerable portion is hopeful that the approval of Bitcoin ETFs will initiate another bull market. Upon researching, another angle of this argument emerges; BAKKT. Proponents of BAKKT believe that they are a much better alternative to Bitcoin ETFs.
Below is a detailed description of both, including their differences.
The Promise Of BAKKT And Bitcoin ETFs
In recent months, investors have been eagerly awaiting the decision of the SEC on Bitcoin ETFs. Although the regulator rejected nine applications in August, many are hopeful that the authority will eventually approve the ETFs. According to the SEC, the reasons behind the rejection was the uncertainty of the blockchain investment models fronted in the applications.
While most of the crypto community is raving about Bitcoin ETFs, another digital asset platform called BAKKT has been introduced by ICE, a prominent security exchange operator. ICE oversees numerous crypto trading platforms acres the world and has collaborated with Starbucks, BCG and Microsoft to develop and launch a regulated global ecosystem for digital ecosystems.
What Is Bitcoin ETF?
An Exchange Traded Fund (ETF) is a marketable security that tracks stock indices, commodities, bonds, or assets. In this case, Bitcoin ETFs track the digital currency. Essentially, ETFs take an asset into custody and issue stocks that represent ownership of the underlying assets. This means that shareholders can own a portion or the entirety of an asset without holding the asset physically.
Bitcoin ETFs enable investors to hold Bitcoin without necessarily mining or trading on digital exchange platforms. Therefore, they are ideal for individuals who are interested in trading Bitcoin but lack the knowledge on how to mine or trade on crypto exchanges. There are two variations of Bitcoin ETFs, ones that hold Bitcoin physically and others that purchase derivatives of Bitcoin. Both track and emulate the performance of the Bitcoin benchmark index.
Disadvantages Of Bitcoin ETFs
The most significant disadvantage of Bitcoin ETFs is that they can be easily skewed. Typically, ETFs are required to benchmark their holdings on an index, as well as disclose their daily holdings. As a result, investors who trade ahead of reconciliation can manipulate the prices. This causes significant variations in prices, creating the problem that Bitcoin was developed to eliminate.
In addition, the use of Bitcoin ETFs contradicts the concept of decentralization, one of the core characteristics of Bitcoin. This is because the ETF manager holds the Bitcoin on behalf of individual investors. The manager is responsible for making decisions concerning the Bitcoin. Since ETFs hold significant amounts of Bitcoin, they are likely to have a huge bearing on the results of voting processes on the Bitcoin network. This undermines decentralization on the blockchain.
Lastly, ETFs will be highly monitored by governmental regulatory authorities. ETFs will be classified as securities, meaning that they would be required to disclose user information to get approval. This will affect the transparency of Bitcoin transactions.
The Advantages Of BAKKT
BAKKT is a comprehensive ecosystem, for digital assets. As of now, its most popular application is its partnership with Starbucks. The BAKKT platform will enable users to buy, sell and hold virtual currencies in an efficient and secure environment. Also, BAKKT will offer one-day Bitcoin futures contracts that are settled physically to mitigate the risks associated with Bitcoin trading.
Features Of BAKKT
Kelly Loeffler, the CEO of BAKKT, stated that the platform will be mainly used to trade and convert Bitcoin into the three leading fiat currencies, namely the US dollar, the UK sterling pound and the Euro. This is meant to enable users to enjoy the benefits of cryptocurrencies using their current financial assets.
In August, BAKKT announced that it was awaiting the approval from the CFTC to launch physically settled Bitcoin futures contracts. Theoretically, this feature would allow users to purchase Bitcoin and expect a delivery of fiat currency in the following day. This will assist in the complying with the regulations and improving transparency and efficient price discovery.
Finally, BAKKT requires all investments to be entirely collateralized; margin trading is not supported. BAKKT also offers safe warehousing for crypto assets so that external parties can have trust in the platform.
Which One Is Better? Bitcoin ETF Or BAKKT?
BAKKT has the upper hand over ETFs mainly because it is profitable and compliant with crypto regulations. Additionally, Bakkt is backed by real-life assets, a factor that reduces the risk of volatility that is associated with virtual currencies.
Furthermore, the BAKKT ecosystem offers a solution to the challenges that are inherent to Bitcoin ETFs. In BAKKT, investors can directly access their Bitcoin and participate in voting processes. Also, all digitals assets are held in a single location, reducing the chances of manipulation. Above all, BAKKT is equipped with a myriad of features that are unavailable for Bitcoin ETF users.