Bakkt, the digital asset exchange set up by New York Stock Exchange owner ICE has announced its launch date is September 23rd. It was awaiting authorisation from the New York State Department of Financial Services for Bakkt Trust Company, a qualified custodian.
The first products are physically delivered daily and monthly bitcoin futures contracts. Bakkt already had the go-ahead from the Commodity Futures Trading Commission (CFTC) through a self-certification process.
Bakkt was first announced just over a year ago, and eight months ago unveiled a $182.5 million funding round from 12 investors, including Boston Consulting Group, ICE and Microsoft’s venture capital arm.
Since December 2017 Bitcoin futures have been available on the CME and CBOE. The big difference is they do not involve physical delivery, so the price is based on the spot market. Numerous analysts have uncovered market manipulation of cryptocurrency spot markets, so the physical delivery skirts that issue.
ICE Futures U.S. will be used as the exchange and ICE Clear US for clearing. The CFTC regulates both. Bakkt is keen to point out that as these are regulated, they will be superior to crypto spot markets for risk management, compliance and market surveillance.
Because the futures will be physically delivered, they need to be custodied. This will be done by Bakkt’s Warehouse, which is part of the Bakkt Trust Company. $125 million in insurance has been secured to cover custodied assets. Plus Bakkt emphasizes that the cyber and physical security protections use the same systems as major markets such as the NYSE. That contrasts with cryptocurrency exchanges which have been the subject of numerous hacks.
Institutional investors are an important target for Bakkt. The announcement states: “Providing a trusted ecosystem is our first objective. To do that we are setting a higher standard, including an institutional compliance and anti-money laundering program, settlement prices that are distinct from unregulated spot prices, comprehensive market oversight, a guaranty fund contribution and insurance.”
While Bakkt may bring along the systems and processes of the regulated market, the fact remains that the underlying cryptocurrency, bitcoin, is not regulated. It will be fascinating to watch the impact on institutional appetite for bitcoin.