Bakkt Review – A New Era For Bitcoin and Crypto Futures
Crypto is moving towards mass mainstream adoption and the current trends in the industry can attest to that. For that, the big players have found out that for enhanced mass adoption to be realized, they need to focus on institutional investors. Currently indulged in trading bonds, stocks plus other financial instruments, institutional investors need to be attracted to the crypto sphere by employing realistic trading platforms that will make crypto trading simple yet profitable.
The influx of institutional investors will obviously mean a large flow of institutional money in the crypto space making crypto gain the legitimacy it much needs and consequently increased Mainstream acceptance and adoption.
One platform that seeks to spur Mainstream crypto adoption is Bakkt– a platform that offers a wide range of cryptocurrency services including trading and warehousing. Here is an in-depth review.
Bakkt is a startup owned by Intercontinental Exchange (ICE) which seeks to become a global ecosystem to provide institutions, merchants and consumers with transaction and also warehousing services for digital assets. ICE is famous for spawning the hyped New York Stock Exchange and plans to enter the crypto market with the help of established companies including BCG, Microsoft and Starbucks. Bakkt is simply an institutional investment geared towards creating more institutional investment in the crypto space.
A Short History
Bakkt was announced by the Intercontinental Exchange (ICE) in August 2018. In a statement, the company said that it was planning to use Microsoft’s cloud service Azure to “create an open and regulated, global ecosystem for digital assets.” The platform will be termed Bakkt and will provide a full ecosystem of digital service warehousing included. The company made it clear that Bitcoin futures trading would become its initial flagship service.
In the announcement, Bakkt launch date was expected to be in December 2018 but ICE delayed it to January 2019 before postponing it indefinitely. The delays were linked with the regulatory uncertainty at that time.
Bakkt was finally launched in September 2019 and has since been in operation. Following the crypto market crash in March 2020, Bakkt received $300 million in funding from Microsoft and Pantera among several other high-profile investors.
Bakkt Key Futures
1. Bitcoin Futures Contracts
Bakkt offers futures contracts that can be settled for Bitcoin or cash at a later time. On the platform, users do not simply buy and store Bitcoin in a wallet address. Bakkt Bitcoin futures contracts are the first-ever one-day physical delivery crypto contracts. These contracts are traded on ICE Futures US (IFUS) and cleared on the CFTC-regulated exchange and clearinghouse ICE Clear US (ICUS).
Bakkt Bitcoin contracts are offered against fiat currencies (including USD, GBP, and EUR. For instance, an individual is able to purchase a USD/BTC futures contract and receive one Bitcoin delivered in their account. Bakkt offers two kinds of Bitcoin futures contracts: a daily settlement Bitcoin future for same-day market transactions, and a monthly bitcoin futures contract that enables prospective trading using the forward pricing curve.
In the crypto space, futures contracts are vital tools to institutional investors as well as traders as they allow hedging, risk management and price discovery which make crypto investments quite profitable. Thanks to Bakkt, regulated crypto price discovery is something of the past.
2. Physical Bitcoin Settlement
Bakkt also offers physical settlement and delivery of Bitcoin. For beginners, physical settlement theoretically means that futures contracts are physically “backed” by Bitcoin and thus are stored in “Bakkt Warehouse”. Apart from Bitcoin, futures contracts are also backed by cash and Treasuries. A research conducted by Arcane Research established that a large number of Bakkt’s futures contracts are settled in cash rather than Bitcoin.
3. Custody Services
As of November 2019, Bakkt Warehouse started serving as a general custody platform. The Bakkt Warehouse, like most custody services, stores digital assets in such a way that its easily accessible by institutional investors. The platform leverages crypto security approaches such as offline storage coupled with financial security strategies such as auditing and insurance policies.
Bakkt is approved by the New York Department of Financial Services (NYDFS) to provide custody services. Major clients using Bakkt’s custody services include Pantera Capital, Galaxy Digital and Tagomi. Bakkt looks to grow its custody services by the acquisition of the Digital Asset Custody Company – a firm that supports 13 blockchains plus over 100 assets. Bakkt also filed an application with the New York Department of Financial Services to become a Qualified Custodian and also operate as a trust company.
4. Payments and Rewards
Bakkt also supports Bitcoin payments and rewards through Bakkt App – a mobile application for spending and managing digital assets. The app isn’t exclusively for Bitcoin balances, it also supports game points, loyalty points as well as cash balances. The app is however yet to be launched to general users with the expected launch date set for summer 2020. The app is as a result of Bakkt’s partnership with Starbucks which now supports Bakkt Cash payments.
Bakkt is also looking to expand its payments and rewards services with the planned acquisition of Bridge2 solutions which deals loyalty and rewards. The acquisition will allow users to pay for products and/or services from supporting companies and retailers using loyalty points.
Bakkt’s Infrastructure and Security
Bakkt is built on Microsoft’s Azure cloud and also employs the same infrastructure used by NYSE. While the platform features hot wallets, the majority of user funds are stored in air-gapped cold wallets insured with a $100,000,000 policy.
Regarding funds security, Bakkt employs both on-chain and off-chain security measures including multisig used to protect cryptographic keys. Other security measures encompass external automated controls such as destination address and multi-factor authentication plus a geographically-distributed storage of private keys provided by BNY Mellon.
Is Bakkt Regulatory Compliant?
Yes! Bakkt is compliant with the United States Commodity Futures Trading Commission (CFTC) making their contract complaint on a federal level. Additionally, Bakkt complies with AML and KYC regulations as well as federal reporting standards as well as market surveillance rules. Bakkt futures contracts being regulated, users can always be sure of the safety of their coins or contracts.
Bakkt and Bitcoin ETFs
Bakkt has been quite instrumental in the growth of Bitcoin exchange-traded funds (ETF). The platform has enabled investors to purchase Bitcoin ETF without actually trading Bitcoin which can be complicated. Bakkt received SEC approval to deal in the ETF thanks to its unique address design. SEC had previously rejected a large number of ETF applicants including the famed Winklevoss twins.
Bakkt is an open, global platform providing regulated custody and market-based solutions for the purchase, sale and storage of digital assets all under one platform. The company seeks to push mainstream crypto adoption by addressing challenges in the crypto space such as security risks, market manipulation, and regulatory uncertainty which have deterred investors as well as consumers from using crypto in their daily activities. With ICE owning and operating some of the world’s largest mainstream exchanges as well as marketplaces, the company will surely succeed in bringing cryptos to the mainstream financial landscape.