September 23rd is only weeks away. For those that missed it, it is the regulatory approved launch date for the Bakkt crypto exchange, the first of its kind – it will be “state-of-the-art; it will offer daily and monthly futures contract that settle “in kind”; and it will be fully regulated. What is that you say? A “fully regulated” crypto exchange? The answers are all in the affirmative, and Bakkt staff are now doing final testing and accepting deposits in their custody service for settlement at a later date. In other words, the “rails” are almost in place for those institutional investors that have been waiting patiently.
Bakkt, the brainchild of International Exchange Inc. (ICE), the parent of the New York Stock Exchange, and crypto enthusiasts have suffered through a number of regulatory delays, but the light finally went green two weeks back, after New York State approved the charter necessary for custody services. The U.S. Commodity Futures Trading Commission (CFTC) had already given its approval, but the futures business requires state-related intricacies, as well.
As Kelly Loeffler, the CEO of Bakkt, had related to Coindesk at that time:
We anticipate, with the finalization of Sept. 23 launch date, user acceptance testing will accelerate, and we will work with customers on on-boarding and getting ready for day one.” The new news is that Bakkt announced on Twitter: “@Bakkt On Sept 6, our Warehouse will begin offering secure storage of customer bitcoin to prepare for the launch of Bakkt Bitcoin Daily & Monthly Futures when they launch on Sept 23. These contracts will enable physical delivery of bitcoin with end-to-end regulated markets and custody.
There have already been several studies by the likes of Fidelity Investments and other firms that have revealed that roughly half of the institutional investment arena has either invested in cryptos or is considering it. For those that have delayed, due to concerns of fraud and price manipulation, the “fog” has dissipated. There will now be a fully regulated “beachhead” upon which to build safe and secure crypto positions going forward.
As a re-phrasing of the old “Field of Dreams” saga, ICE has now built it, will they come? Regulatory oversight and secure custody services have always been a prerequisite for institutional involvement. As for price discovery, the futures contracts will not be dependent upon unregulated spot markets. The Bakkt service will act as a transparent mechanism to establish prices for Bitcoin. Other major cryptos will follow later.
As for pent-up demand for this type of service, a recent quote from Brian Armstrong, the CEO of Coinbase, which recently acquired Xapo Ltd and its custodial services, was revealing when he spoke with folks at Cointelegraph:
Whether institutions were going to adopt crypto or not was an open question about 12 months ago. I think it’s safe to say we now know the answer. We’re seeing $200 – $400 million a week in new crypto deposits come in from institutional customers.
When CCN reached out to Pantera Capital, a cryptocurrency and blockchain investment fund, the response back was also convincing:
If you can find an asset that has a 235% eight-year-compound annual growth rate and basically zero correlation with anything else, you should own some. That’s the simplest way to describe why blockchain should be in a portfolio. The one asset class not correlated to the others is blockchain (for the obvious reason that very few institutions own it).
The launch of Bakkt also conveniently coincides with a summer lull in price behavior that has driven Bitcoin prices down to the $9,500 level, perceived as a “bargain” in most current crypto circles. As institutional types arrive back at their desks next week after holiday, the Bakkt and Bitcoin storyline could become very interesting.