Bakkt to the Future: a digital exchange in a physical world

Intercontinental Exchange (ICE), the operator of the New York Stock Exchange, confirmed the launch of its investor-grade cryptocurrency trading platform Bakkt. Pending approval by from the US Commodities Futures Trading Commission (CTFC), the company will go live on December 12.

Bakkt offers a point of entry for financial institutions and businesses interested in cryptocurrency. Through this initiative, it will join the ranks of a small group of businesses offering cryptocurrency investment solutions to corporate clients.

But even amongst its peers, Bakkt is doing things differently.

At the Futures and Options Expo last week, Bakkt CEO Kelly Loeffler announced that “[the company] will provide the first federally regulated, physical delivery price discovery contract for the digital currency market.”

Bakkt will convert digital assets to physical forms, in the hopes of providing greater security to investors. This system, paired with the ICE’s reputation as a stable investment industry mainstay, should ensure CTFC approval.

The company has been candid about the vetting process, and regularly shares updates. Last month for instance, the company tweeted this business plan to followers.

Our first contracts will be physically delivered Bitcoin futures contracts versus fiat currencies, including USD, GBP and EUR. For example, buying one USD/BTC futures contract will result in daily delivery of one Bitcoin into the customer’s account.

— Bakkt (@Bakkt) September 25, 2018

Bringing Crypto to the Masses

Bakkt will be an intermediary between traditional investors and the volatile cryptocurrency market. And as Fidelity Investment’s entry into the cryptocurrency market shows, there is growing demand for these products and services.

“In bringing regulated connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence with the asset class on a global scale,” ICE Chief Executive Jeffrey Sprecher explained.

This starts by simplifying the investment and holding process.

Bakkt will store client assets in cold storage, as opposed to online wallets connected to third-party exchanges. This involves printing physical proof of asset ownership and keeping these documents secure in vaults or lockers.

Cold storage is usually considered safer than so-called ‘hot wallets’ because digital assets are safe from probing online hacks. To access something in cold storage, the thief would need to steal the actual documents in person.

Now, as Forbes partner Trade.io discovered this week, cold storage does not guarantee protection. But it is a reliable alternative to leaving assets in their digital form.

The practice of cold storage is also more practical for the busy corporate sector. Bakkt clients can rest easy knowing their assets are beyond the reach of hackers.

Who are the Masses?

Bakkt’s entry into the market is great news for large companies interested in cryptocurrency. Not so much for individual investors and small firms.

At this point in time, Bakkt is marketing itself to corporations and financial groups including Starbucks, Microsoft and the Boston Consulting Group (BCG). These companies have announced plans to introduce the technology to their customers at a later date.

“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into US dollars for use at Starbucks,” Maria Smith, Vice President of Partnerships and Payments for Starbucks, explained.

“As a leader in Mobile Pay to our more than 15 million Starbucks Rewards members, Starbucks is committed to innovation for expanding payment options to our customers.”

For everyday folk, the launch of Bakkt won’t change much. But while the company may not solve larger issues of mass adoption and integration for the moment, it is a great start.

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