Call Bakkt a & quot; Cryptographic Exchange & # 39; misses by what they actually do

Intercontinental Exchange (ICE) attracted the attention of the entire cryptocurrency market last August with the announcement of Bakkt, a new venture led by former ICE investor relations manager Kelly Loeffler , who promised to introduce bitcoin into the mainstream.

Then, Bakkt was featured in media reports, especially this gushing profile of Fortune, the a panacea to the problems in the nascent bitcoin market, which is plagued by hacking and is struggling to attract the attention of fund managers and professional investors.

"Bakkt's founding imperative will be to make Bitcoin a strong and secure offering for key constituents who are avoiding it now, the world's leading financial institutions," writes Shawn Tully of Fortune.

"The next step might be to use Bitcoin to replace your credit card," he added, referring to big partnerships with Microsoft and Starbucks. The details of the involvement of the coffee maker and the technology company in Bakkt have been published since August 2018.

As part of Bakkt's stealthy exit, the company also promised to launch a bitcoin futures contract in November 2018, which, unlike others on the market at the time, would physically set up. Bakkt announced Friday that the product would finally be rolled out to customers on September 23rd. In fact, this launch would make it the first company in the United States to offer physically regulated, bitcoin-regulated futures contracts, a move well advanced in the world. market have described as an important step in the maturation of cryptocurrency. Of course, provided neither ErisX nor LedgerX goes first.

Nevertheless, two Bitcoin-related futures are far from an "open platform that helps unleash the potential for transforming digital assets" described by Loeffler in 2018. At least at first glance.

If there is one thing that deserves to be considered – at least based on my conversations with market makers – betting against Intercontinental Exchange is a fool's race. Indeed, Bakkt's slow and steady approach – a concept foreign to crypto-natives among us – could prove to be a winning strategy.

But let's start with the first point. As I noted in a semi-lucid Twitter feed Friday, Intercontinental Exchange, founded by Loeffler's husband, Jeffrey Sprecher, is known for its success.

Founded in 2000, Intercontinental Exchange has been launched as an over-the-counter trading platform for energy, metals and other commodities. Backed by Goldman Sachs, Morgan Stanley and Deutsche Bank, he decided to leverage Internet technology to enhance the trading experience of commodities, including making it cheaper and more transparent.

In 2013, Nathaniel Popper told the New York Times the story of ICE's trip from Sprecher's last nights on his sister's couch, evoking his inability to convince investors to "lose his money and years of his life" until mega-purchase of the icon of American capitalism, the New York Stock Exchange.

It seems absurd. An Atlanta businessman settles in New York and leaves with the tall, pillared temple of American capitalism. But if all goes as planned, its $ 8.2 billion acquisition, announced a few days before Christmas, will be finalized later this year. And with that, 221 years of Wall Street history will come to an end. New York will no longer be the master of the New York Stock Exchange. Intercontinental Exchange, Mr. Sprecher's young company, will run the country's and the world's largest stock exchange, from its bland headquarters located 750 miles from Wall Street.

Indeed, it always seems absurd. Almost as absurd as the ICE project to create Bakkt to serve as the vertebral column of the entire ecosystem of cryptocurrency.

Do not sleep on ICE. In its early days, ICE experienced rapid growth, notably with the acquisition in 2001 of the London-based International Petroleum Exchange and then the New York Board of Trade in 2005. In 2008, ICE created a clearing house for credit risk swap contracts following the financial crisis. Two years later, Bloomberg News nicknamed Sprecher "The Exchange Sultan" for allowing the company to grow rapidly to reach $ 10 trillion by 2010.

Certainly, in some ways, ICE has been a little disappointing in recent years, acquiring more than creating.

"They have been excellent in their formative years and have earned a lot of dollars," said Thomas G. Thompson, derivatives expert and writer for Lothian News. "Since then, they have spent the fortune of their shareholders on a bunch of submarines that have disappointed."

According to data collected by the Wall Street Journal, NYSE's share of the total US equity market as a result of the acquisition has not substantially benefited from the new property.

Nevertheless, in terms of ICE's overall share price, shareholders do not have much to cry about. It has increased by 1,200% since the company went public in 2005.

Regarding Bakkt, ICE's support is one of its main selling points, depending on the market makers who spoke on condition of anonymity. But what exactly is Bakkt?

His early marketing efforts have really buried the truth on this point, in my opinion. Aside from the credit card ambitions and the Starbucks partnership, Bakkt is contributing – and now strongly positioning itself – its status as a qualified institutional dealer with the support of a publicly traded company. stock market worth 51 billion dollars. For starters, the preservation company will stock the bitcoin that underpins its contracts, but it is safe to assume that they will soon open their doors to hedge funds, asset managers, and other clients.

"Wait, this is not a crypto exchange?", You may be wondering. Not really. At least not yet.

Do not let the future distract you. The guard is in the heart of Bakkt, several sources tell me. So, to a certain extent, it competes with ErisX, Seed CX and the litany of other derivatives platforms, on the futures side. But its real competitors are BitGo, Coinbase Custody and Fidelity. The value proposition of using Bakkt as a depositary is clear. It is a truly institutional offer with the blessing of the CFTC and the State of New York. (No offense, South Dakota enrollees).

"With state-of-the-art physical and cyber security, institutional-level technology and governance, and supported by insurance for digital assets in frozen portfolios, Bakkt is setting a new standard in digital asset retention by leveraging the tools the NYSE is building on, "reads Bakkt's revamped website.

Coinbase and BitGo have their own strengths, of course. Namely their respective user bases.

The acquisition of Xapo by Coinbase could bring the total amount of bitcoins under its control to around 4% of the total supply, or 860,000 bitcoins. Currently, 2.5% of all bitcoins are in his custody. Grayscale, one of the largest cryptocurrency asset managers, manages approximately $ 3 billion of assets managed by Coinbase.

BitGo would have assets of $ 2 billion in its custody. At the same time, Fidelity's newbie retention business offers a complementary brokerage service to help clients route orders to exchanges when they want to make a transaction. Detention is only part of what these companies are trying to do. The fees, which hovered around 100 basis points last summer, are now approaching zero. Coinbase already operates an exchange business, in addition to the custody. BitGo is looking to start a main brokerage business, several sources are telling The Block.

As far as Bakkt is concerned, the futures contract is probably part of a wider effort to allow the discovery of regulated prices. This is something the chief operating officer, Adam White, hinted at FIA Boca.

"What Bakkt basically believes is that the price discovery will occur in a regulated end-to-end market," he said. "Most of this price discovery is happening in the spot market, but it will switch to the futures markets."

This change could help dispel the concerns of regulators who turned down exchange-traded funds as they feared reliance on unregulated spot market prices.

And Bakkt could play a role in launching new instruments that would be linked to their end-to-end regulated market.

With the green light to operate as a confidence in the state of New York, Bakkt has more freedom to reign than other market companies to launch new lines of business. As Arthur Long, Gibson Dunn's lawyer, told The Block in May, a trust is "more expansive" and allows businesses to operate in a wider range of finance services.

So maybe an ETF. Maybe an asset manager. Perhaps the much anticipated 401 (k) ramp is expected.