An Update On Bakkt: The Key to the 2019 Bull Market in Crypto Assets, by Van K. Tharp, PhD

Van's PhotoFew people probably know that Intercontinental Exchange, which owns the New York Stock Exchange along with a number of other exchanges, is hard at work developing an institutional platform to trade cryptocurrencies. The name of the platform is Bakkt and it’s rumored to start in November 2019.

First, the exchange is working in partnership with Microsoft and Starbucks. The platform will be cloud-based which is where MSFT technology and expertise come into play. In addition, Starbucks is involved in helping currencies like BTC be accepted as payment at numerous retail outlets.

When this exchange starts trading it should not only be the end of the bear market in cryptos, it will also be a huge stimulus for the market. It would surprise me to see BTC at $50K to 100K by the end of 2019 and that gains from other cryptos will dwarf that. In 2018 the cryptoassett market cap had gone down to about $200 billion from $800 billion. With these new developments, we could see the market cap at 3-4 trillion by the end of 2019.

So what is known about Bakkt, the CEO is a woman, Kelly Loeffler. In addition, she has recently hired Adam White from Coinbase to be the Chief Operating Officer. Bakkt will be a direct competitor to Coinbase.

Right now the platform is currently awaiting operational approval from the US Commodities and Futures Trading Commission (CFTC), could potentially act as a compliant on-ramp that could bring about Bitcoin mutual funds and ETFs to retail investor’s 401(k). The is expected shortly but regulation issues that involve the government are never easy.

Loeffler explained that the platform is currently hard at work with members of the clearing house risk committee, and is working closely with their clearing house boards to meet the regulatory guidelines set forth by the CFTC and the US government. Subject to CFTC approval, the exchange hopes to begin testing and onboarding in November, with trading starting the following month, in December.

Bakkt is also awaiting approval on a patent for their proprietary market model that aims to provide institutions with a regulated framework for offering cryptocurrency-related products to their clients. Again, patent approval depends upon the US government.

Her comment has been: “Our patent-pending market model is focused on mitigating risk while creating opportunities for institutions to serve their clients in a regulated framework for digital assets. This means creating a solution that both provides wanted exposure and limits unwanted exposure. A critical aspect of our model is ensuring that our clearing members are well protected from a risk perspective through a conservative market design…”

The aforementioned model will utilize three key requirements to ensure risk mitigation, including a requirement for full pre-funding for all Bitcoin trades, direct access to the warehouse, which means that clearing members will not have to handle cryptocurrency themselves, and a fund that ensures that non-default clearing member capital is never at risk.

Loeffler also explained that forming a regulatory framework for nascent industries is incredibly important, and that dialogues regarding regulation are already in full swing, specifically mentioning the attendance of regulators at the recent LabCFTC FinTech Forward conference.

Assuming the platform is approved by the necessary regulatory bodies, Bakkt could bring a significant amount of retail wealth into the cryptocurrency industry, possibly reversing the persisting bear market.

In addition, this is just the setting that will enable the CBOE to launch an ETF for Bitcoin which should get SEC approval in 2019. It’s hard to imagine the SEC not approving a CBOE product which will be based upon bitcoin futures.

In addition, I would expect ETFs for ETH in 2018 and there is a good chance that some of the crypto indices, such as the Bloomberg index, will also form the basis for ETFs. If this happens in 2019, then my estimate of a 2-4 trillion market cap for crypto is probably way too low.

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