On September 23, at 03:00 Moscow time, ICE Futures US, one of the world's largest commodity markets, launched futures tradingBakkt's contracts are the first deliverable bitcoin futures on a fully regulated trading platform. The platform is the first of its kind to receive US regulatory approval.
Bakkt platform promises to provideInstitutional investors have a safe, well-controlled Bitcoin trading place (BTC). With Bakkt futures, funds or brokerage companies will be able to send their payments under the guarantee that their bitcoins will be delivered through the same ICE clearing center, which processes contracts concluded by world oil giants. Their bitcoins will be in an ultra-secure vault, which is controlled by people responsible for the safe trading of shares on the New York Stock Exchange.
ICE is a financial giant with a marketa capitalization of $ 52 billion, which owns the New York Stock Exchange (NYSE); NYSE Arca, the world's largest ETF platform; ICE Futures US, one of the leading players in the commodity market and ICE Futures Europe, where one of the major Brent crude oil brands is traded.
Bakkt became the brainchild of the founder andICE CEO Jeff Spreacher, who played a key role in transforming large exchanges from open-air venues with noisy trading holes into today's electronic markets.
Despite repeated launch postponementsplatform, Bakkt futures will begin trading earlier than rival LedgerX's contracts. A few days before Bakkt's launch, Fortune spoke with Jeff Sprecher, Sprecher's wife and Bakkt CEO Kelly Loeffler, and Bakkt COO Adam White at the company's headquarters near ICE's modest headquarters on the outskirts of Atlanta.
Make Bitcoin More Popular
Bakkt's management says the company's immediate goal is to make Bitcoin a popular alternative investment along with gold and private equity.
“Funds that trade on our exchanges do not wantdeal with today's unregulated markets and require full federal NYSE supervision to feel safe with bitcoin trading ”Löffler says.
“Pension funds, for example, nowdiversified into alternatives. Regulated bitcoin futures can be part of this investment, as they have different correlations with stocks and bonds, as well as with other alternatives, such as gold. ”
Once hedge funds, family offices or TDAmeritrades will enter the Bitcoin market, Bakkt's giant trading volumes should smooth out the volatility that scares both investors and potential users, and “create a stable and reliable currency.” When (and if) this happens, Bakkt plans to create a Bitcoin retail app.
The company has not yet announced its ideas onretail payments, but acknowledged that the partnership with Starbucks involves big plans for the future. Bakkt is also in talks with other brands that want to use digital currencies for consumer payments.
Sprecher told Fortune: “This is not demand yet, but a strong curiosity. It seems like asset management companies want to be ahead of the train, and not stay away. Every day we read the news about the price of bitcoin, which went up or down, but among them we also see smart people who invest in infrastructure. However, consumers will not use this infrastructure and there will be no true global recognition if we cannot establish a regulated market. ”
He notes that several weeks or months will pass before the Wall Street audience appreciates Bakkt's prospects:
«It’s like a premiere - everyone is nervous».
US authorities considered bitcoin a “commodity”, and,therefore, it falls under the jurisdiction of the United States Commodity Futures Trading Commission (CFTC), and not the Securities and Exchange Commission (SEC). But CFTC does not currently issue a license to manage spot commodity markets where physical goods are bought and sold instantly. As the name of the department implies, CFTC is competent to trade commodity futures - contracts requiring payment, say, from a refinery to a seller of crude oil for future fuel delivery.
In addition to CME futures, cryptocurrencies are traded onspot markets, which are not classified as “exchanges,” in accordance with US law, and in most cases have licenses for money transfers issued by the states in which they operate. Investment companies are not very satisfied with such fragmented control and they want to see strict, uniform standards from the CFTC at the federal level. Now the global cryptocurrency market has more than 200 cryptocurrency exchanges, each of which sets its own prices. As a result, Bitcoin does not have a single price.
And this new reference price seeks to provide Bakkt.
In the CFTC-regulated futures market, tradeonly brokers-dealers and authorized for intermediation in futures transactions (FCM) can. The trading reports and reserves of these clients are carefully checked by the exchange, and the exchange itself is controlled by CFTC. These companies are also members of clearing centers - ICE Clear US in the case of ICE Futures US.
Bakkt offers one futures contract,which is traded as a spot contract. By purchasing daily futures, the buyer receives bitcoin into his account on the same day (almost like on a spot exchange). The difference is that the Bakkt product has all the benefits of strict regulation from CFTC. Monthly Bitcoin futures, another type of Bakkt contracts, will set a more centralized price.
According to management, the trust of large customers inICE will extend to its subsidiaries, and the use of ICE technology will create an ultra-secure repository for storing digital assets. The company has powerful tools to protect transactions on the exchange. In the Bakkt Clearinghouse called Bakkt Trust, ICE is deploying the same cybersecurity systems that the NYSE uses.
Nothing is automatically approved. To transfer bitcoins from a cold wallet to a hot one, several people (two or more) in two Bakkt or ICE offices must sign security protocols that are used in other NYSE markets. Then the transfer requires the approval of several more team members through the process of identity authentication.
According to Loeffler, asset managers told her that bitcoin could very well be part of their portfolios if trading was safe enough.
“Bitcoin volatility is now a big minus for retail transactions, but not for institutional investors”Löffler says.
“Many of the goods that funds use as alternative investments are extremely volatile.”
She notes that bitcoin is absolute.maverick; its highs and lows do not correlate with stocks, bonds, gold and real estate. And, despite its volatility, over the past decade, Bitcoin has surpassed all these assets in terms of total profit.
What about Bitcoin ETFs or mutual funds fromVanguard or Merrill Lynch? Bakkt executives say it’s hardly worth the wait. Since the ETF is actually a type of securities, not a commodity, it should be regulated by the SEC, and this regulator has repeatedly stated that the current bitcoin market is subject to manipulation. In particular, the SEC noted that Bitcoin does not have a reference price, which makes it difficult to establish reliable quotes for newly created securities.
On the other hand, if Bakkt will acquirehuge volumes of cryptocurrency, the company can set a global base price in the longer term, as ICE does for Brent oil now.
Bakkt's partnership with Starbucks led toassumptions that the ultimate goal of the company is to bring Bitcoin into the world of retail payments. This assumption was confirmed by Löffler and Sprecher. Today, consumers around the world spend a staggering $ 25 trillion. per year through your credit cards. The payment processing companies charge retailers an average of 2.4% to 2.5% for these purchases and return part of this “exchange commission” to consumers in the form of cashbacks or other rewards to increase loyalty.
Merchants would like to gain control over thesein money, to develop reward programs themselves instead of loading customers with points that they may never use. Most likely, retailers will never accept payment in bitcoins. But millennials are very enthusiastic about bitcoin and other cryptocurrencies. They are much more comfortable paying with the application than with the card.
People with the Bakkt app on their smartphoneswill be able to use bitcoin for shopping. Bakkt will convert bitcoin to dollars, so the seller will never see bitcoin, only the traditional currency. According to experts who compared transaction costs when paying via bitcoin with credit cards, the former can reduce the current exchange commission by about 75%.
But this concept will only work if Bakkt succeeds. It remains only to be patient and watch.</p>