Bakkt has been given the all-clear to launch its full product service in September, which has understandably excited a lot of people in the crypto community. The news, which Bakkt announced Friday and which saw a brief spike in the Bitcoin price, was met with jubilation by almost the entire community given its stated aim of encouraging institutional investors onto the Bitcoin rollercoaster. To succeed however, Bakkt will need to quickly establish itself as one of the big players, and this is by no means definite.
We have some news https://t.co/ykUvQ31cGz
— Bakkt (@Bakkt) August 16, 2019
Bakkt Clears Final Hurdle
Bakkt’s announcement that they had overcome the final hurdle in their offering, that of New York State Department of Financial Services (NYSDFS) approval, reminded us of their lofty ambitions to “bring institutional infrastructure to digital assets” with their regulated marketplace, enterprise-grade custody, and physically-backed futures contracts. The news that an actual launch date for the project had been nailed after a year of development and delays down created a ripple of excitement through the community, with many predicting that this was just what Bitcoin needed to bring in the kind of money that could propel its valuation towards the six-figure mark:
Remember, the hype is bakkt with substance.
Unlike other futures exchanges, this is settled in bitcoin. Hard, actual bitcoin is paid out, not fiat equivalent to the price of bitcoin.
The result is better price discovery and liquidity for bitcoin.
— Rhythm (@Rhythmtrader) August 16, 2019
Q: Why is @Bakkt important for adoption of bitcoin?
A: It offers a way for large, risk-averse institutions to buy and custody bitcoin through an end-to-end regulated system approved by the CFTC and NYDFS, and backed by the sterling reputation of ICE. Compliance lawyers rejoice!
— Jake Chervinsky (@jchervinsky) August 16, 2019
Bakkt certainly has the potential to open the floodgates to a new breed of investor, and with the world on the verge of another recession the timing couldn’t have been better – institutional investors will be falling over themselves to buy up Bitcoin as a hedge to a possible financial crash. Or so goes the theory.
Quickly Filling the Coffers
Bakkt has a problem, in that it doesn’t (yet) have the resources to match its competition or offer a compelling case that it will be as big as it plans. If it wants to match its grand ambitions and drive Bitcoin’s price discovery it will need to obtain enough backing to put it in league with the three other giant ‘B’s’ in crypto – Binance, BitMEX, and Bitfinex. This means it needs lots of one of two things – cash or BTC. Cash will come by the way of institutional investors, although how much will be thrown their way and how quickly it comes will be telling – after all isn’t really likely that Wall St. is piling up outside Bakkt’s gates like it’s Willy Wonka’s Chocolate Factory. It’s more likely to be a healthy trickle, at least to start with, which means Bakkt will have to start stockpiling BTC if it doesn’t want to be left behind or seen as another wannabe market powerhouse – as Cboe found out, reputations mean nothing in this game.
There’s a decent chance that they have been buying up BTC in 2019, but there’s only so much they can buy before the first tranches of money come in. The fact is that over 95% of BTC currently mined is in the hands of less than 5% of addresses, meaning there isn’t a huge amount left to go round, suggesting that Bakkt is going to have to be canny with how it goes about getting hold of its coins to avoid paying higher and higher prices.
How Bakkt performs in the ten weeks between launch and the end of 2019 will be heavily scrutinized and might give us an inkling into whether all the substance will match a year’s worth of hype.