Bakkt (pron. backed) is an institutional grade online derivatives platform that offer contracts on Bitcoin. Currently, it offers both futures (daily and monthly) and options contracts.
The first announcement of the Bakkt trading platform was made on 3rd August 2018. After continual delays in the ETF proposals, Bakkt’s regulated platform was perceived to be a game changer.
Here’s what Bakkt brought to the markets:
- First regulated platform of its kind, where the contracts are settled in Bitcoin itself, hence, recognizing its exchange appeal.
- Bakkt’s parent company is ICE (Intercontinental Exchange), the parent company of NYSE (New York Stock Exchange), the largest stock exchange in the world.
- BCG, Microsoft and Starbucks were reportedly working with Bakkt to provide security and also convert digital assets into US dollars for spending at Starbucks.
These are times in the crypto market, when apart from futures on CME and CBOE futures exchange, the market has no other institutional support or positive regulatory outlook.
Effectively, it meant that the world’s largest coffee chain along with the New York Stock Exchange was getting involved with Bitcoin. This was a big deal towards its adoption.
Nevertheless, the markets were still under tremendous sell-off after the 2017 bubble, and was in a bearish long-term trend.
Earlier, the CME futures launch on 17th December 2018, marked the top in Bitcoin [BTC] around $20,000. The launch of Bakkt, despite being positive news, had a similar ring to it following the announcement.
On 20th November, the CEO Kelly Loeffler announced that the dates for the launch have been pushed from December to 24th January on account of regulatory concerns. This was reminiscent of the SEC’s delay of the Bitcoin ETF.
Co-incidentally, the initial launch date of 12th December was near the bottom in Bitcoin. Bitcoin bottomed on 15th December, 2018 with a low in the range of $3100-$3150.
Eventually, the launch date of 24th January was postponed as well. Along with bearish technicals, this news further increased the selling pressure in the crypto markets.
The markets were forced to believe that Bakkt would meet continual delays like the ETF.
Institutional Development in 2019
Bakkt‘s design is the first of its kind, it involves physical delivery of Bitcoin on the profit/loss of derivatives. Hence, along with speculating on Bitcoin it must also provide secure and trusted custody arrangements. This is where the roadblock was in terms of regulatory approval, because the futures contract had already been approved by the CFTC in December itself.
Eventually, 2019 saw an increasing institutional development in the space. Fidelity Investments began a custody service for Bitcoin which would serve derivatives funds like Bakkt.
Furthermore, Gemini and Coinbase also procured licences to operate as a regulated custodial platform even in New York. The Grayscale GBTC was one of most successful of them all, grabbing the attention of fund managers all over.
The #DropGold Campaign was launched on 2nd May 2019, along with institutional development, this advert marked the first real comparison of Bitcoin with gold in the mainstream.
The GBTC index represents the Bitcoin Investment Trust Fund which can be traded publicly and to accredited customers.
A Premature Launch by a Rival
On 31st July 2019, LedgerX, a digital assets derivatives platform announced a physically deliverable product ahead of Bakkt and EricX (backed by TD Ameritrade). However, the CFTC disapproved of the launch immediately claiming that the approvals have not been passed yet.
Paul Chao, the CEO of LedgerX notes,
if the government does not do the right thing, we will sue them, period. already talking to our lawyers about this.
According to the team of LedgerX, the CFTC was giving preferential treatment to Bakkt and ICE. Despite having complied with all their laws before Bakkt, allegedly, the commission was bent on Bakkt’s launch first.
Eventually, despite the claims, Bakkt won the race and launched its derivatives platform on 23rd September.
Buy the Rumor, Sell the News
The launch of Bakkt turned out to be exactly like the launch of CME – resulting in a downfall. The price of Bitcoin fell drastically as it reached the near end of another descending triangle in Bitcoin. Not that Bakkt was alone responsible for the drop. However, given the market reacts on the very next, it was quite dramatic.
The announcement of the launch was made on 17th August. During the month following the launch, investors hoped that Bakkt launch would reverse the bearish trend. However, after the launch on 23rd, BTC closes down 11.8% the following day with a drop from $9780 to test lows below $8000.
Given the design and the backing of Bakkt, it had a lot of influence on the market sentiments. It was also responsible for the institutional development around Bitcoin. Nevertheless, the direct purchase on Starbucks using Bitcoin was still away. Financial and crypto analyst Mati Greenspan noted,
If a regular exchange is the on and off-ramps to bitcoin, this is an eight-lane superhighway. You certainly aren’t going to judge how good the highway is based on how much traffic it has on opening day.
Furthermore, it is nothing but a speculative platform, and the leverage on other derivatives exchanges is far more lucrative for traders to jump to Bakkt.
The first week performance of the platform was highly dismal. At opening there was absolutely no rush seen at the counter, in fact day one performance was highly disappointing with only 71 BTC traded on the platform. In a month, it only traded about 365 Bitcoins.
Currently, it projects a healthy volume and an open interest of over $10 million. The highest daily trading volume recorded on the exchange was more than $44 million in November 2019.
Moreover, the non-regulated derivatives exchange continues to provide futures exchange with a lot of leverage. Hence, for speculative purposes, as mentioned earlier, BitMEX, Okex, Huobi, FTX and even CME were better choices.
Bakkt Brings Hope in 2020
After the recent drop of nearly 50% due to the coronavirus outbreak, and the break below 200-Day Weekly moving average sounds alarms of bears in the market.
Nevertheless, the pull-back above $5,600 almost instantly after the drop brought short-term relief in the markets.
However, fundamentally, with the halving nearing in May, a price drop apparently creates a lot of pressure on the miners. Below the price @ $4,500, the miners are better off buying Bitcoin than spending on electricity. Moreover, this cost will effectively double after 12th May when the mining rewards are reduced by half.
A financial update by Bakkt brought a silver lining to the clouds of existential crisis on Bitcoin. It announces a $300 million Series B fundraising round. Moreover, it also updates on its plans on increasing customer adoption of cryptocurrency payments for retail purchases on Starbuck via ‘bakkt cash.’ This will enable conversion of cryptocurrencies to bakkt cash which is likely to be added by other stores and firms as well, in the future.
Essentially, this is an indirect payment which involves custody of Bitcoin and cryptocurrencies. Nevertheless, it adds a lot of intrinsic value to these cryptocurrencies.
Will the Bitcoin ETF Hype be Worth it?
The speculative market in cryptocurrencies, especially Bitcoin has seen tremendous development in the last couple of years. Bakkt has had a significant influence on the development and the price of Bitcoin during these times.
However, in terms of real impact, the platform is still in the early stages of making one. Next in line stands ETF approval by the SEC which has been pending for over 3 years now. The product will essentially allow addition of cryptocurrencies in mutual fund portfolios, insurance and pension funds and other financial assets.
In all probability, an approval will be highly bullish for Bitcoin and cryptocurrency markets. However, the price action around the launch of CME and Bakkt in the past will add considerable suspicion in the bulls around approval.
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