After multiple delays, the much anticipated Bakkt Bitcoin futures
exchange is finally live. It offers a whole new way to trade, store
and pay with Bitcoin. The crypto community is excited about the
development, but what does it really mean for the bitcoin
market now and looking forward?
The Bakkt platform is really about building the machinery necessary to entice institutional investors to start buying and using cryptocurrency. If they can pull it off, this could have huge implications for the whole cryptocurrency sector.
Bakkt: For institutions, by institutions
The name ‘Bakkt’ is a play on words for the word “Backed”. Implying that Bitcoin held in the Bakkt exchange is ‘backed’ by solid financial infrastructure. Bakkt was created by ICE, a major player in global finance. It is the major financial corporation that controls huge investment platforms like the New York Stock Exchange. It is also a leading global operator of financial exchanges. The fact that this global financial futures powerhouse has created a dedicated Bitcoin futures exchange should come as a big deal for everyone in crypto.
Bakkt also has some major partners. Companies like a coffee giant Starbucks and IT powerhouse Microsoft are on board, trying to bring easier cryptocurrency payments to their products. Starbucks is the leading retailer partnering with Bakkt, helping to create the platform itself and develop applications that will allow coffee drinkers to easily use Bitcoin for purchases. They have pointed out that they aren’t accepting Bitcoin as payment. Rather, they are using the Bakkt exchange to convert cryptocurrency into fiat at the counter to receive payment. That’s why the Bakkt partnership is so important.
For a long time, crypto enthusiasts have speculated how long it will be until you can easily buy a local cup of coffee with Bitcoin. That time is approaching fast. These global enterprises can see the opportunity waiting to be taken, and want to be the ones to open it up.
The goals of Bakkt
Bakkt stated that their platform is meant to provide much better efficiency, security, and utility into the crypto market. By doing this, they hope to make many more people participate in Bitcoin, including institutions.
Ultimately, Bakkt wants to open up the cryptocurrency market by building an investment vehicle that tailors to the needs of larger investors. A key step in that plan is to move many more retail payments from credit cards over to Bitcoin. That’s what the big-name partnerships are for, and why Bakkt is “working with leading merchants who recognize the potential of digital assets”.
They are also striving to provide protection for Bitcoin that investors expect in other asset classes. Protection includes things like insurance, guarantees and the ability to hedge investments against short-term volatility.
The potential pros of Bakkt
If Bakkt will achieve its stated goals, it will have a huge impact on the crypto market.
First, it will allow institutional money to flood into the crypto market. Money that has been famously hesitant to buy up volatile and legally obscure crypto tokens. Institutional investors have vastly more funds than the small-time investors that currently dominate the space. Having this new money come into the system will almost certainly push prices up and up.
However, institutional money is also smart money. It’s likely that if these new investors start buying up Bitcoin futures contracts on Bakkt, they’ll do so in a calculated and orderly fashion. After all, they didn’t accumulate their millions (or billions) by making rash decisions on new technologies. The influx of institutional money will probably be fairly slow and steady.
If the smart does eventually roll in, it could also have another effect on price: reducing volatility. A higher total market capitalization would mean prices would fluctuate less. Significantly higher trading volumes would also have the same effect. And, having more educated investors in the space would reduce the impact of panic buying and selling. Bakkt would also allow investors an enhanced ability to hedge bets against short term price fluctuations, so there would be much less need to panic sell in the first place.
Overall, the creation of crypto financial platforms like Bakkt will add to the credibility of Bitcoin and help bring it to the next level.
The potential downsides of Bakkt
The introduction of Bakkt does also come with tradeoffs. The first is the inflating supply of Bitcoin. With investment vehicles like futures contracts, investors and institutions will be able to create claims to Bitcoin basically out of nothing. They can do this by creating binding promises to buy Bitcoin in the future, rather than buying the real coins now. This increased supply in the short term could have strange effects on current prices.
Another more serious downside is the shift towards centralization. Bitcoin is an important technology because of its censorship resistance and decentralized governance. Bakkt reverses this and stores huge amounts of Bitcoin in a central location controlled by a major global financial entity. Many of those who currently are in the Bitcoin space see this as a weakening of the principles that Bitcoin was built upon.
It was always inevitable that new financial platforms like Bakkt would pop up for Bitcoin. There is an unfathomable amount of institutional money interested in Bitcoin, but the space isn’t quite ready for it to dive in. The riches are there for whoever can build a robust enough platform to lure all that money. Bakkt is looking to do that.
If it will achieve its goals of bringing blockchain and Bitcoin to new investment markets, it will have huge upsides for anyone holding Bitcoin right now. The price will likely soar, and there will be a whole new way to buy into the market. However, it does raise big questions of censorship and centralization to the Bitcoin hardcore.
Overall, Bakkt is an exciting development for the Bitcoin ecosystem. It could open the door for a whole new wave of products and interests in the crypto world.