BAKKT BELIEF: BEAR MARKET BUSTER: Bakkt Narrative Has Believers Anticipating The ICE Initiative Can Jump Start Crypto Bull Market

Bakkt is set to begin trading it’s ‘physically deliverable’ Bitcoin futures on December 12th. The narrative that surrounds Bakkt within the crypto community is that this could be the institutional catalyst that breaks the dam that currently is holding the stagnate price and overall 2018 crypto bear market in place.

Given the scale of the Bakkt architecture and the ‘bones’ on which it is being built (Intercontinental Exchange, or ICE, own and operates nearly all of the meaningful commodities exchanges across the globe – and Bitcoin has been dubbed a commodity by the CFTC) many believe that the largest global investment banks and UHNW clients will rush to the relative safety of Bakkt’s offering. Given the juxtaposition of purchasing Bitcoin via a crypto exchange in Mexico or Malta – family office types will be much more comfortable trading Bitcoin (futures) via the same pipes that gold, silver, and oil futures are traded.

**A quick reminder as to what Bakkt is and will be doing:

Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency, and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the blockchain.

As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearinghouse plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing on December 12, 2018, after receiving CFTC review and approval. These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.

In a detailed tweet thread, one of the most respected legal minds in the crypto space put together a clear summary of what Bakkt is about to embark on and how it could positively affect the crypto markets. Below are his thoughts and included links that give context to Bakkt’s potential influence:

Via Jake Chervinsky of Kobre and Kim LLP:

“Bakkt is a brand new platform for institutions, merchants & consumers to trade, store & spend digital assets. It was announced three months ago on August 3 in a detailed Fortune article that’s still one of the best sources of information on it today: Bakkt Fortune article.”

“Bakkt’s goal is to make digital assets easier to buy, sell, store & spend. Bakkt will start by offering one-day, physically-settled bitcoin futures contracts. That means if you buy a futures contract from Bakkt, you get actual bitcoin the next day. Bakkt Medium Article – Kelly Loeffler.”

“One of Bakkt’s most exciting features is the company behind it: the Intercontinental Exchange (ICE), the 2nd largest owner of financial exchanges in the world, including the NYSE. ICE has also attracted big-name partners to the project, like Microsoft, Starbucks, and BCG.”

“CE entering crypto feels like a big deal. It’s an established, respected & powerful player in the finance industry. In other words, large institutions trust ICE with their money, including those institutional investors who many people think are key to the next bull run.”

“Also noteworthy is the fact that Bakkt will custody & deliver real bitcoin. That means institutional inflows would reduce supply & thus (maybe) increase price too. This is different from other regulated futures markets like CME & CBOE, which only deal in cash-settled futures.”

“Bakkt will roll out in two phases. Phase one, set for December 12, is a futures contract where one contract = one bitcoin. This isn’t too useful for commercial transactions–nobody buys stuff in increments of one bitcoin–but it’s perfectly fine for institutional investors.”

“Phase two is a mystery. Bakkt hasn’t said what it is or when it’s coming. Given all the talk about “spending” via Bakkt, I’m guessing it’s some type of consumer-grade payment system. Maybe the kind you’d use at Starbucks to buy coffee with bitcoin. We’ll have to wait and see.”

“n the minds of many, Bakkt’s launch has become a full-fledged narrative for when & how the bear market will end. It plays the same role as bitcoin ETFs as a trusted vehicle to bring that sweet institutional money into the space, but without all the trouble of SEC approval.”

“Hype aside, some people have lingering concerns about Bakkt. The big question is if Bakkt will try to financialize bitcoin in a harmful way, such as through the use of hidden leverage. The leading voice on this issue is , who you must already be following by now.”

“n what seemed like a response to Caitlin’s critiques, Bakkt’s CEO, Kelly Loeffler, wrote a Medium post explaining that: – all bitcoin trades on Bakkt will be fully prefunded, and – Bakkt will not use any leverage, commingling, or rehypothecation. Bakkt Medium post on transparency.”

“Despite Bakkt’s response, Caitlin sees open questions here. Her point is that nothing can be taken for granted when Wall Street financializes scarce assets, so we need to see Bakkt’s paperwork before drawing conclusions. The devil is in the details. Per Caitlin Long: ‘No. Big open question=will lend coins in its warehouse?Rehypothecation could happen at any of 3 levels (futures contract, clearinghouse, warehouse)-Bakkt has only answered regarding futures contract. Warehouse is where it would normally happen & that question not answered.'”

“As for Bakkt’s paperwork, what are we waiting for & when is it coming? Since Bakkt plans to sell futures, it falls under the regulatory jurisdiction of the US Commodity Futures Trading Commission (CFTC). Selling futures without getting CFTC approval first is mostly illegal.”

“But Bakkt falls under an exception to the rule requiring advance approval. ICE is already a CFTC-registered “designated contract market,” so it has the ability to “self-certify” a futures product for listing without prior CFTC approval. It just has to file its papers first.”

“A designated contract market like ICE can file a self-certification submission as late as one business day before initial listing. That means ICE technically doesn’t have to file Bakkt’s papers until Tuesday, December 11 for Bakkt to launch futures on Wednesday, December 12.”

“But just because ICE can self-certify Bakkt’s futures contracts doesn’t mean Bakkt can totally ignore regulatory approval. The CFTC still has jurisdiction over self-certified financial products. Bottom line: if the CFTC doesn’t want a futures contract to trade, *it won’t.*”

“Consider the process that CME & CBOE went through to get approval for their bitcoin futures last year. Both of them ended up self-certifying, but only after *months* of negotiations with the CFTC & changes to their products. The CFTC explains here: https://www.cftc.gov/PressRoom/PressReleases/pr7654-17.”

“As for timing, CME & CBOE self-certified several days before launch. Both of them filed their self-certifications on December 1, 2017. CBOE launched 9 days later on December 10. CME launched 17 days later on December 18. Who knows if Bakkt will follow a similar timeline.”

“Assuming Bakkt does go the self-certification route, its papers will go live on the CFTC’s database here: (). I’m guessing the CFTC will also put out a press release like the one they did for CME & CBOE. All eyes on the CFTC website for news on Bakkt.”

So a few remaining open questions that seem to have easy answers. CFTC licensing/certifications approval is clearly a foregone conclusion or else Bakkt wouldn’t announce a date certain for trading to commence. They would have all manner of egg on their face should they not have clear assurance that licensing/certification is a non-issue.

As stated by the above tweets the CME and CBOE received their certifications a mere 9 and 17 days before their launches. So there is precedence for ‘close to the bell’ approvals.

The remaining issue is whether or not Bakkt will provide the catalyst to end the bear market and push the crypto ecosystem to new highs, as well as new levels of adoption. The infrastructure is in the packaging for Bakkt – but packaging is one thing and real-world implementation and use are another altogether.

Should Bakkt pull off Bitcoin inclusion in the Starbucks mobile app (the largest mobile payment system in the US, by the way), then the Bakkt experiment will almost certainly be seen as a massive 2019 success story.

The cynics would point out that CME and CBOE futures didn’t prove to make any meaningful changes in the crypto markets direction, so why should Bakkt be any different? Let’s hope that the cynics are wrong.