Why Bakkt is a Bihhg Deal

There remains a huge barrier of entry for cryptoassets, specifically around custody.

Sure, you can argue that Coinbase have this covered with their custody offering, but the Bakkt solution is orders of magnitude larger, ICE is just the type of counterparty that institutions will happily engage and many of the largest financial players already do.   The Intercontinental Exchange was formed in 2000 from joint funding from Global banks and Energy traders and since that time has been on a huge acquisition spree which has created the current $80 bln dollar Fortune 500 Company. Coinbase, despite amazing inroads and Unicorn status, remains a private company.

Why does this matter?

Individuals hold Private Keys…. Institutions employ third party custody solutions that can be audited, verified, insured and uphold rigorous compliance standards.

The money you have under your mattress is not FDIC insured, if you have a break-in or an unwelcomed tornado ripping through your house, you have no recourse. If your bank has a solvency problem or becomes victim to a good old fashioned heist, you are covered [up to 250k].

Jim Coinbase and Jon Snow [sorry, too tempting] are both friends of yours. Since you’ve known them, Jim has had a tenuous employment history but just started a new job and Jon has amassed an impressive property portfolio [without leverage]. Both ask to borrow $1,000, who are you more comfortable with? In custody, balance sheet matters.

It is this lack of a custody solution that has left many institutional players on the sidelines…. Until now.

From the ICE press release:

“As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearing house plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to 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.”

At a minimum, this is verification of Cryptocurrencies as a new asset class…. But I suspect it will turn out much bigger than that, despite the choice of name 😉

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