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Crypto is moving towards mass mainstream adoption, and the current trends in the industry can attest to that. The big players have found out that they need to focus on institutional investors for enhanced mass adoption to be realized. Currently indulged in trading bonds, stocks, and other financial instruments, institutional investors need to be attracted to the crypto sphere by employing realistic trading platforms to 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 the 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 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, the 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 Microsoft and Pantera funding, 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 can 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 and traders as they allow hedging, risk management, and price discovery, making 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. Research conducted by Arcane Research established that many 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 it’s 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 acquiring the Digital Asset Custody Company, which supports 13 blockchains and over 100 assets. Bakkt also applied with the New York Department of Financial Services to become a Qualified Custodian and operate as a trusted 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. However, the app is yet to be launched to general users, with the expected launch date set for summer 2020. The app is 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 with 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, most 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 and geographically-distributed private keys provided by BNY Mellon.
Is Bakkt Regulatory Compliant?
Yes! Bakkt is compliant with the United States Commodity Futures Trading Commission (CFTC), making its contract complaint on a federal level. Additionally, Bakkt complies with AML and KYC regulations and federal reporting standards, and market surveillance rules. Bakkt futures contracts being regulated, users can always be sure of their coins or contracts’ safety.
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 with 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 to purchase, sell, and store 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 and consumers from using crypto in their daily activities. With ICE owning and operating some of the world’s largest mainstream exchanges and marketplaces, the company will surely bring cryptos to the mainstream financial landscape.