Bakkt launched on 22nd September 2019 with the Bakkt Bitcoin Futures contracts taking the main stage. These Futures are a vital step towards adoption of digital assets to institutional investors. Continue reading as we go through what is Bakkt and what these Futures contracts are.
About Bakkt
Bakkt is a Bitcoin Futures exchange and digital assets platform, that was founded in 2018 by the Intercontinental Exchange (ICE). ICE is the parent company of the New York Stock Exchange, and it initially had plans to launch the platform in 2018. The launch date was postponed due to the sheer volume of interest it got as well as the amount of work required to prepare the platform to be ready. Additionally, there were some regulatory issues to go over before they can release the platform. Finally, on 22nd September 2019, the futures exchange platform went live.
As you can already tell by looking at the parent company behind the project, there is serious backing involved. But that is not all. Bakkt has also partnered with multiple world-wide organizations like Boston Consulting Group (BCG), Microsoft and Starbucks. The whole idea of the project is for people to be able to use crypto assets in everyday life seamlessly in the future. The company has also partnered with major investment groups, including Fortress Investment Group, Susquehanna International Group, and Eagle Seven, in order to build a path for major money managers to offer bitcoin mutual funds, pension funds and exchange-traded funds, A.K.A. ETFs.
In 2019, Bakkt made an announcement regarding its acquisition of the Digital Asset Custody Company (DACC) in order to improve its crypto asset custody and storage. In a different statement, the company advised that is closely working with global bank BNY Mellon, in order to develop revolutionary solutions for private key storage. With the launch of the futures contracts, the actual physical delivery of Bitcoin is now possible. Read more below regarding these contracts.
What Are Futures Contracts?
In the previous section we talked about the bitcoin futures contracts, on which the Bakkt platform will be based. We would like to shed some light on them and remove any confusion surrounding them. A futures contract is a legal agreement between two parties to buy or sell a particular commodity or asset at a predetermined price and time in the future. These contracts are a standard tool for quality and quantity for trading at a futures exchange. The party that buys the futures contract is taking the legal obligation to buy the asset in question, when the contract expires. On the other hand, the seller is also taking a legal obligation, which is to provide the said asset on the expiration date.
When it comes to types of futures contracts provided by ICE, there are daily and monthly futures. ICE’s futures will be the first ones to offer a physical delivery of crypto assets either online or through Bakkt’s secure warehouse. This wasn’t available with CME Group’s version in 2017, which is cash-settled. In light of the recent events, CME is planning to launch such options contracts by 2020. These futures contracts are shielding investors from the volatility of assets by locking in prices for future transactions.
Due to the low capability of transactions per second that the Bitcoin network has, as well as the controversies affecting it, this mode of payment is not well received. With the Bakkt venture, Bitcoin can now be positioned as a more conventional monetary exchange in the future. One of the partners, Starbucks, even plans to give the ability for customers to pay with bitcoin in their facilities.
Bakkt Features
Of course, there is backlash from the crypto community regarding the success of Bakkt futures and if it will be beneficial for both the crypto industry and the institutional investors. In light of that, we would like to remind you that the project is still in its beginner stages and would affect only the said investors and not the regular users. Let’s go over the main features that Bakkt will provide to its customers.
- Custody of Funds – the company will be providing state of the art physical and cyber security as protected storage is their main goal. Bakkt will be delivering a new standard in digital asset custody through institutional grade technology and governance as well as insurance for said assets. The Bakkt warehouse is comprised of both online (warm) and cold storage. The company uses both storages in order to minimize the risks that are associated with online storage. These storages are also protected by a $125 million insurance policy from a leading global carrier. Of course, the coverage will be reevaluated regularly depending on risks and updates to operational best practices. The partnership with BNY Mellon custody bank will assist the safekeeping process.
- The Payments – Bakkt is working with leading merchants that recognize the potential of digital assets in order to improve transactions and payments. The ability of transactions with digital assets holds a great promise as these cryptocurrencies have evolved beyond a store of value or speculative asset.
- Markets – The partnership with ICE’s leading futures exchange and clearing infrastructure will bring physically delivered futures contracts to parties around the world.
- Compliance – Bakkt Trust Company LLC, a subsidiary of Bakkt Holdings, LLC, is licensed by the State of New York to provide custody of bitcoin and is a qualified custodian under applicable laws. Registered with the Financial Crimes Enforcement Network (“FinCEN”), Bakkt Trust Company complies with FinCEN’s applicable regulations and guidance.