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Tag #Bakkt

Bakkt update

The launch of Bakkt, an Intercontinental Exchange-backed platform offering physically-settled bitcoin futures, has been delayed. What’s going on?

 

One of the most hotly-anticipated developments in the crypto sphere has been Bakkt, an initiative launched in partnership with NYSE owner Intercontinental Exchange (ICE). Bakkt has taken over from a bitcoin ETF as the great hope to drive the next bull market. The platform was originally supposed to launch in December, but was delayed until 24 January – allegedly due to ‘the volume of interest in Bakkt’.

 

However, this was dependent on regulatory approval by the CFTC, and it looks like Bakkt’s launch has been another victim of the US government shutdown, which has stretched on far longer than any previous shutdown and longer than most critics imagined possible. It’s currently unclear when Bakkt will open its doors. The company made a point of developing its platform in strict secrecy for 14 months, and keeps its cards close to its chest; it makes occasional major updates but doesn’t pander to the day-to-day ‘when moon?’-type clamour from the crypto faithful (and who can blame them?).

 

In the meantime, Bakkt have been busy raising money – $182.5 million, from 12 strategic partners including Pantera Capital, Microsoft’s VC arm and ICE itself. They are also in the process of acquiring ‘certain assets of Rosenthal Collins Group (RCG), an independent futures commission merchant with nearly 100 years of earning clients’ trust.’ These assets will ‘enhance our risk management and treasury operations with systems and expertise. Other aspects of the transaction will contribute to our regulatory, AML/KYC and customer service operations as we help enable digital asset acceptance by bringing more choice and control to buyers and sellers.’

 

Bakkt themselves have not said when they expect to launch, and presumably they’re not prepared to guess; it’s ‘awaiting CFTC approval’, and that’s out of their control thanks to the spat over a very long wall along the border with Mexico. (That hasn’t stopped other sources trying.) ICE’s last update on 31 December read, ‘The launch had previously been set for January 24, 2019, but will be amended pursuant to the CFTC’s process and timeline.’

 

Right now, the best guess is: wait for the US government to reopen, and expect an update within days of that. There is a 30-day public comment period, but until 22 December, when the shutdown started, Bakkt was still tentatively working to its 24 January schedule. Given the previous timeline, we can probably expect Bakkt to launch a little over month or so of the shutdown ending – whenever that is.

 

As a final point, it’s worth noting the continuing uncertainty in the cryptocurrency markets. It’s unclear whether bitcoin has bottomed. By the time Bakkt is able to launch – very likely some time in March or possibly April now – the situation could be very different, sentiment will likely have shifted and the platform could leverage renewed confidence to get off to a flying start. The shutdown hasn’t been great for Bakkt, but there could be a silver lining.

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Bakkt update

Institutional finance needs on-ramps, and this one is on the way soon – but not quite yet.

 

2018 has seen intense speculation about a bitcoin ETF, with numerous applications by different providers denied and a decision on the most promising, the SolidX-VanEck proposal, repeatedly postponed. For a long time the SolidX ETF was the best hope for a means for Big Money – pension funds, family offices, hedge funds and other institutional investors – to access bitcoin trading. These organisations have been prevented from buying BTC in the past due to the requirement of storing the crypto, and the risks that come with that.

 

While the conversation around the ETF has gone cold, Bakkt appeared out of nowhere towards the end of the year and has garnered plenty of interest. It was due to launch a fortnight ago, but that date had to be pushed – for good reasons, was the implication from Bakkt’s Twitter account on 20 November. ‘Given the volume of interest in Bakkt and work required to get all of the pieces in place, we will now be targeting January 24, 2019 for our launch to ensure that our participants are ready to trade on Day 1’.

 

And in this update from 27 November, Bakkt confirms: ‘We expect the contract to launch on January 24, 2019, subject to regulatory approval. We’ll continue to update you on our progress and milestones.’

 

The distinctive feature of Bakkt, for those who are still uncertain, is that their futures are ‘physically settled’, meaning that the orders are passed through to the underlying market. Buying a 1 BTC futures contract with Bakkt means 1 BTC of real demand, whereas other futures products are just ‘paper’ contracts that do not intrinsically impact the market in the same way.

 

However, Bakkt’s expected launch date of 24 January might need to be delayed. The government shutdown in the US may impact it, and according to the latest reports, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, has not yet received approval from the U.S. Commodity Futures Trading Commission (CFTC). This delay, along with the shutdown, means that Bakkt may well miss its 24 January date.

 

This isn’t a disaster, though, and the delay may only be a few days. Crypto bulls should also factor in the way the launch of Bakkt is likely to impact the market. The narrative has been, among the perma-bulls at least, that Bakkt will almost immediately bring a flood of institutional money and BTC will duly skyrocket. But this isn’t how markets tend to work. We’re in the midst of either a bear market or the earliest stages of a fragile recovery, depending on how you read it, and the truth will only be known for sure in hindsight. We need time for the market to make a decision, either to bottom properly or consolidate and show strength from here. Then confidence will return and larger investors are more likely to be willing to dip their toe in the water.

 

Ironically, delaying Bakkt into February might possibly give the market time to play out this stage.

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What happens when Bakkt launches on 12 December?

TL;DR What everyone thinks will happen, won’t happen.

 

There’s a narrative doing the rounds right now in the crypto world. After 11 months of bear market, the new uptrend will begin when Bakkt launches, opening the floodgates to institutional money. 12 December will see an uptick in the price of bitcoin, and then the good times will roll once again.

 

Right?

 

It makes perfect sense, but it just doesn’t work like this. While Bakkt and other regulated products do open the way for institutional money and significantly higher prices, the short-term impact on price is far from certain. The reason is that all the information about Bakkt is already out there: we know when it’s going to launch. So the impact is already priced in.

 

Crypto trader Alessio Rastani gives a great overview about the two different types of information at play in a market: information for the Masses (i.e. almost everyone), and information for the Classes (i.e. the 1% of professional traders). This is why the relationship between news and price is tentative, at best: by the time the ‘news’ is public knowledge, it’s already old and professional traders have already made their moves. Moreover, pro traders – including institutions – are often the ones putting out the news in the first place. The narrative the public sees is the one they determine. In short, price is a far better indicator of what’s going on than the news cycle. The chart contains all the information you need.

 

Rastani gives some good illustrations of this for the bitcoin market. A good example from today is the news that China has just ‘unbanned’ bitcoin once again. Last time a China ban came into force, the market apparently dumped – but quickly recovered and went on to make dramatic new highs. This was expected by the pro traders, who took it as an opportunity to pick up some discounted BTC. This time? China unbans bitcoin and the market drops. We’ll see where it goes longer-term, but make no mistake – the top traders will have profited from the expectation that the Chinese news would be interpreted as bullish by ‘dumb money’.

 

And this is why we need to be careful trying to forecast what Bakkt will bring. When everyone is dealing with the same information, no one has an edge. So all the regular traders thinking they will profit from the launch may be in for a shock. While Bakkt’s launch is bullish overall for the sector, that week itself may see some unexpected volatility and a shakeout as the 1% take profits at the expense of Average Joe – and then pick up discounted BTC to enjoy the new rally.

 

TL;DR Bakkt is positive news, but don’t get rekt by the Classes.

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