Bakkt was announced as a project several months ago, and it immediately gained lots of eager fans and supporters that were impatiently waiting for the promised company to become a reality. And who could blame them?
We’re talking about a partnership between Microsoft, Starbuck’s (yeah, the coffee guys are going crypto) and ICE (the firm that owns the New York Stock Exchange) to create a massive cryptocurrency service that would facilitate mass adoption, at last, for Bitcoin and other digital assets.
And it would enable you to pay for your cappuccino using your Bitcoins. But it’s stuck. It’s been stuck for ages as a new problem arises at every step of the way, and that’s making the supporters weary.
See, Bakkt can’t become a real thing without a favorable ruling by the Commodity Future Trading Commission (CFTC), which is slightly weird since digital money is not a commodity at all, but that’s how absurd current regulations are.
The CFTC corroborated last month that it’s reviewing it. But they’re not in a rush to actually do the did (while Bakkt supporters are already quite anxious). Bakkt was supposed to go online during these year’s Q1, which is already gone. And we don’t need to tell you that Bakkt is still offline.
But there’s a hope for an imminent ruling, and it has to do with things happening in other cryptocurrency exchanges, which will be Bakkt’s competition in the fullness of time. This whole situation seems taken out of a novel by Franz Kafka for the eager Bakkt fans who can’t wait for it to go online.
An elementary idea drives Bakkt: to turn Bitcoin into a legitimate financial instrument. As the world’s main digital asset penetrates the world’s more traditional (and sizeable) financial institutions, the crypto market would change.
It would stop being a market dominated by retail investors which are mainly hobbyists, to become a mainstream market with all the trimmings, much like Forex, the commodities market, stock exchanges and all those financial activities that don’t get the bad rap that the crypto verse has, unfairly, acquired.
As a quick digression, let’s notice that several analysts have said that the retail-driven cryptocurrency market has given us everything it can already.
If crypto is going to grow again, as it has in the past, the only way that will happen is with fresh institutional money from Wall Street, the London’s City, and traditional banks investing in crypto all over the globe. In other words: if a new bullish run is ever going to happen again, it will only be because of corporate money. Bakkt could be the trigger for that.
Bakkt already has a CEO, Kelly Loeffler, who had this to say:
“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant, and consumer participation in digital assets by promoting greater efficiency, security, and utility.”
The main obstacle for this vision is the lack of a reliable process that’s impervious to manipulation. The project is so ambitious, and the system processes so unclearly, that the CFTC could have a hard time making its mind up on this issue because it could find dilemmas and contradictions (at least in traditional financial terms) everywhere in the project.
Future contracts and manipulation
Rumor has it that CFTC is somewhat worried about the possible abuse of Bitcoin future contracts settled in cash. Let’s translate that into plain English. Future contracts become mature at a point in time. That’s when one party has to pay the other one the difference between the spot and the future price. That makes the buyer vulnerable to spot price manipulation.
That being said, Bakkt’s proposal is all about settling futures contracts physically (whatever the heck “physically” means when it comes to digital money). So in Bakkt’s service, buyers would physically get their Bitcoins when the contract matures in such a way that spot price doesn’t come into it at all. But physical settlement contracts do have problems of their own, even if they’re not related to spot prices.
Custodian services by third parties
Third party custodian services make sense for commodity futures exchanges to employ. They minimize the risk of theft and loss. Nonetheless, Bakkt’s idea is to be its own custodian, and that probably won’t make the regulators all that happy because there’s this thing called ” SEC 17 CFR Part 270 – RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940″. It reads like this.
“Currently, investment companies generally must maintain assets relating to these transactions in special accounts with a custodian bank.”
To tangle things even further, it just so happens that regulators already approved one of Bakkt’s parent companies (ICE). Not for cryptocurrency trade but for traditional business, which is to be expected of the New York Stock Exchange’s owners.
That whole context seems to point to a scenario in which CFTC’s decision will hang on its belief about the “reality” of cryptocurrencies as financial instruments. Up until now, the regulatory agency has remained silent as a grave. They explain their reticence by invoking the need to understand the cryptosphere in full before emitting any statements.
Bakkt is not even online so far, yet it has competition already. And the competitors couldn’t possibly care less about the CFTC’s delay. As a matter of fact, the chances are that they’re enjoying it. Take CoinFLEX. It’s keeping its momentum regarding development.
The UK-based CoinFloor subsidiary can boast support from several crypto celebrities such as Roger Ver (of Bitcoin Cash fame), Mike Komaransky, and the Dragonfly Capital Partners. And they’re receiving a round of fresh money in investments by the Dragonfly Capital Partners and Polychain Capital. These new partners are not only a sign of confidence in CoinFLEX itself but in that the Bitcoin futures business will most likely be approved.
And CoinFLEX is also launching a token of its own, in an attempt to differentiate itself from Bakkt. The coin’s use case would be to reward its customers by decreasing fees and helping to increase liquidity in the exchange. Users will get tokens according to the amount of business they carry out using the platform, especially when it comes to daily volume.
So now you know what’s going on with Bakkt, which is to say, not that much. But the project is still standing, it still has the support of its three parent companies which are the world leaders in their respective niches, and it’s still moving forward. It just so happens that the red tape it needs to cut through is so thick that it probably needs a new pair of scissors.
The most likely scenario is that Bakkt’s launch will remain stuck for quite a bit. Governmental agencies have shown no urgency at all when it comes to dealing with cryptocurrency issues. Just take the SEC and Ripple example: the cryptosphere has waited a very long time for SEC to rule about Ripple’s XRP’s nature. It must decide whether the token is a security or not. It still hasn’t happened and SEC just doesn’t seem to mind about the delay.
SEC’s decisions (as well as CFTC’s) are binding only within the United States. That segment of the market remains influential enough (many of the world’s most influential exchanges are based out of the USA). So even if Asia and Europe are way more active in the cryptosphere, an adverse decision by either agency could send shockwaves all around the crypto world that would start in North America but would affect cryptonauts all around the planet.
Bakkt will happen. It’s unthinkable that Microsoft, Starbucks, and ICE could be stopped if they put their minds (and resources) into a project. Just don’t hold your breath because chances are it will take some more time. Much like the next cryptocurrency bull run.
Image courtesy of Pixabay.
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