Bakkt has set out to create a product that appeals to institutions in a way that other crypto exchanges and firms have yet to do – ultimately, trust.
Trust in the pricing process. Trust in the custody construct. Trust in the warehousing facility and deliverables. Trust in the narrative that Bitcoin (futures) will be handled on Bakkt’s systems in the same way that gold, silver, and oil futures are handled on their legacy global commodities exchanges. Exchanges where trillions of dollars of transactions change hands on a yearly basis (yes, that is trillions with a T).
The connection that JP Morgan is making with Bakkt is relatively simple – they trust the team, they trust the systems, they trust the history of Jeff Specher, Kelly Loeffler, and ICE. They transact billions in commodities trades on ICE systems already. They trust that Bakkt will be as efficient and transparent as those systems.
And that is exactly the narrative that Bakkt is selling as they talk to potential institutional clients and those that onboard early. Bakkt can be trusted, because ICE and the NYSE can be trusted.
JP Morgan (and more specifically Jamie Dimon) doesn’t want any sort of negative Bitcoin headline given his level of questions surrounding the asset. As stated a couple of months ago, he just “doesn’t want to talk about it.”
But that doesn’t mean several teams at one of the world’s largest banks aren’t preparing to treat Bitcoin like the commodity that the CFTC has dubbed it as, and trade it via Bakkt’s architecture. It is the one name that gives them a level of comfort that they find legally acceptable.
How visible these banks of scale will be with Bakkt from the outset will be very interesting to watch. Bakkt strategically announced themselves with partners like Microsoft, Starbucks and BCG. Massive names that add trust as a backdrop to whatever narrative lives inside the halls of JP Morgan.
One JP Morgan trader took a few moments to give us a little color on how they see and talk about Bakkt:
“Bakkt is the only place we’d approach Bitcoin and the crypto space. Any and all other ‘set ups’ just don’t rise to the legal standard that is acceptable risk for us. Bakkt is the only place that passes that test. Whether we are there as soon as the door opens, or window shop for a few months, it is the only name we are considering in terms of client funds finding their way into crypto.”
It doesn’t surprise us that firms of scale will be cautious with Bakkt and the volume with which they ‘dip their toes in’. Executives will have to get comfortable seeing line items on P&L spreadsheets with the term ‘Bitcoin’ on them – when just a year ago global investment banks were all decrying $BTC as the devil.
Financial markets are constantly evolving, though, and Bakkt seems uniquely positioned to capitalize on the idea of Bitcoin as digital gold. That is the thesis that Bakkt’s roster of All-Star investors believes.
We will find out soon enough.