Crypto in the Doldrums
Cryptocurrencies brand has recently taken yet another hit. Japanese crypto exchange Zaif just lost $60 million to hackers. That follows the plunder of another Japanese exchange in January, Coincheck, which lost nearly half a billion dollars, not to mention the raid of several other exchanges this year.
Signs of a Turnaround?
But positive news may be around the corner. The big boys of exchange trading have come to crypto town. Intercontinental Exchange, a leading operator of global exchanges, burst onto the scene this summer, announcing the formation of Bakkt, a company which could create a sustained rise in Bitcoin investment and adoption. If approved by the U.S. Commodities Futures Trading Commission (CFTC), Bakkt plans to create the largest US-regulated global platform for consumers and institutions to buy, sell, store and spend digital assets. Investors would purchase a digital asset (a commodity) through a broker-dealer, regulated as a member of the ICE futures exchange.
Bakkt Could Resolve Several Issues Hindering Bitcoin
If Bakkt realizes its vision, the firm could indeed resolve several issues that have long stymied cryptocurrency adoption and investment.
Bakkt to the Futures
Regulated futures markets provide the cornerstone for the Bakkt plan. Although a trading facility that simply exchanges fiat currency for Bitcoin on a “spot” basis doesn’t come under regulation, Bitcoin futures trading is regulated by the CFTC. Two exchanges, ICE Futures U.S. and ICE Clear U.S., would launch their first physically delivered Bitcoin futures and warehouse in coordination with Bakkt.
Deterring Fraud and Market Manipulation
Bakkt thus seems poised to meet arguably the most challenging regulatory concern. According to CEO Kelly Loeffler, the initiative would integrate Bitcoin trading into ICE’s robust, proven, federally regulated commodities exchange infrastructure, including “…consistent standards for compliance… market surveillance, and reporting standards at the federal regulation level.”
ICE’s Regulated Exchange Experience
And though Bakkt has not yet released details about how it plans to collect and analyze data on Bitcoin trading to detect fraud and market manipulation, it seems to have a formidable infrastructure to do so. Not only does ICE operate six leading regulated financial exchanges including the New York Stock Exchange, but selling data on exchange pricing and providing analytics represent ICE’s biggest revenue generators. Its ICE Global Network provides clients access to data analytics from over 150 global markets, including proprietary data from NYSE and ICE exchanges, its ICE Data Services division, in addition to over 600 proprietary and other sources.
No Margin Calls
Bakkt also plans to remove borrowing from the investment equation, which could satisfy regulatory interests in reducing investor risk. The new daily Bitcoin contract “…will not be traded on margin, use leverage, or serve to create a paper claim on a real asset,” explained Bakkt CEO Kelly Loeffler. The first contracts Bakkt envisions will be physically delivered Bitcoin futures contracts priced relative to a fiat currency. “Buying one USD/BTC futures contract, for example, will result in daily delivery of one Bitcoin into the customer’s account,” Loeffler clarified, which would typically occur within the Bakkt digital warehouse.
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