What is BAKKT?
BAKKT is a company founded by the owner of the New York Stock Exchange (NYSE) that is primarily looking to be the global regulated ecosystem for digital assets. It’s already partnering with the likes of Microsoft, BCG and Starbucks and is looking to enable consumers and institutions to buy, sell, store and spend digital assets seamlessly. BAKKT is a one step forward towards the regulated future of the crypto market. Some even consider it more important than the eventual introduction of the Bitcoin ETFs. Given the already established relationships with banks and stockbrokers of ICE, it’s mother company, BAKKT is likely to outcompete the current leaders in the industry – Coinbase and Binance.
Is BAKKT Positive for the Development of the Crypto Ecosystem?
Until now we haven’t seen an official announcement on how exactly BAKKT’s Bitcoin futures contracts are going to work, but only promises. But promises can always be easily broken. In a recent letter addressed to the SEC, Bryan Bishop (Bitcoin core developer), Caitlin Long (former Morgan Stanley Managing Director), Christopher Allen (e-commerce coding pioneer), Champion de Crespigny (Founder of Ernst & Young’s blockchain team Angus) and fund manager attorney Gavin Fearey have already warned the SEC against certain types of enterprise adoption, specifically against practices employed by the ICE, and its upcoming launch of the cryptocurrency exchange – BAKKT.
The practice known as “commingling” could devalue bitcoin by creating more liquidity than there are assets to back it. This will potentially harm one of the core principles of limited supply that Bitcoin has and create paper Bitcoin. In addition to the commingling practice, the letter also concerns against another generally accepted potential practice known as “rehypothecation”, where a company claims the ownership of an asset in its balance sheet but lends out the asset to another party that also claims the ownership of the same asset on its balance sheet, and so on. This is most certainly not transparent, safe and reliable.
BAKKT’s CEO – Kelley Loeffler – clarified that the “Bitcoin contracts would not be traded on margin, use leverage, or serve to create a paper claim on a real asset.”
However, concerns remain that since current regulations permit the practices, there’s no reason to believe they won’t be implemented with the new crypto assets.
Recently, institutional bank – Citigroup has announced this month of release of a cryptocurrency custody solution that will rely on DAR(Digital Asset Receipts) designed to give investors a way to gain exposure to cryptocurrency without actually owning it.
That’s precisely what we should be concerned about.
We will keep following BAKKT’s case and will update you accordingly with any further developments. Stay tuned here!