With the introduction of a regulated market like Bakkt, it opens up cryptocurrency trading to big financial institutions, making buying and selling easier.
ne of the newest things in the crypto news world is the creation of the company named Bakkt, and it is causing quite the commotion among those in the crypto community. This article will help explain what Bakkt is and what it means for the average person looking to invest in cryptocurrency.
Bakkt was first announced in August 2008 and is a subsidiary company of the Intercontinental Exchange (ICE). ICE is a company that owns and operates exchanges for financial and commodity markets, examples include the New York Stock Exchange, Chicago Stock Exchange and ICE Futures Canada. To get a little better understanding of what Bakkt means for the cryptocurrency world, a bit of background knowledge has to be explained.
What these exchanges represent are markets where people can trade financial instruments such as stocks, commodities and futures. The average person has probably heard of what stocks and commodities are; stocks are partial ownership in companies, and commodities are objects of value such as gold and corn.
Futures are a little unique, what they represent are contracts between two parties deciding on a future price of a commodity.
Take for example corn, the price of the commodity fluctuates throughout the year. Corn farmers would ideally like to sell their corn for the highest price possible, while companies looking to buy corn would like to buy it at the lowest price possible. The farmer wants to sell at $15 and the company wants to buy at $13, but with the fluctuations in price, neither are guaranteed.
To avoid these fluctuations, the corn farmers and company decide to create a futures contract to transact at $14 dollars of corn at a future date. The significance of creating a futures contract is to hedge against any possible losses on sales or to avoid over spending due to the fluctuation in future prices. It is essentially representing a fair compromise between two parties looking to transact with each other.
With the introduction of a regulated market such as Bakkt, it opens up cryptocurrency trading to big financial institutions, making buying and selling these assets a lot easier. Institutions will be able to trade cryptocurrency and exchange Bitcoin for fiat currency, all on a regulated platform.
The influx of these financial institutions also introduces more people into the Bitcoin network, inherently making it much stronger.
One of the biggest features that Bakkt offers is the implementation of Bitcoin Futures contracts. These futures would work just the same way as the corn example, two parties can decide on a Bitcoin transaction at a future date.
All Bitcoin deposits to the Bakkt Warehouse will be protected by a $125 million insurance policy.
The significance of this is that the Bitcoin will be physically delivered to the buyer (an assumption could be made that the Bitcoin will just be transferred to the buyer’s wallet). Meaning that, with an active futures market of Bitcoin, this implementation will lessen Bitcoin’s already scarce supply, which would in turn, drive the price up.
The introduction of Bakkt and its impact to the financial institutions is definitely a big plus, but it does not have a direct influence on the average consumer. At the moment, buying, storing and spending Bitcoin is a fairly difficult task for someone that is not well versed in the subject.
Another goal Bakkt aims to achieve is the implementation of real-world adoption. Bakkt seeks to do this by partnering up with companies such as Starbucks. Having a partner like Starbucks will help encourage the use of Bitcoin as a means of payment.
In addition, this partnership will also inform the average consumer about the existence of Bitcoin which will expose more people to the network, making Bitcoin much stronger.
Bakkt is also partnering with Microsoft, and at the moment, not much is known about this partnership besides the fact that Bakkt will be utilizing Microsoft’s cloud solutions as its medium for trade. But one can imagine a future where all Windows devices could come implemented with it’s own cryptocurrency wallet.
Bakkt is scheduled to open on September 23rd, 2019 and it is an exciting moment for those in the cryptocurrency space. As an average person invested in Bitcoin, I hope for two things, a good rate of return and mass adoption.
The opening of Bakkt will not instantly change the landscape of cryptocurrency, but it is definitely a good step forward for both those things.
Financial institutions having a regulated medium to trade helps legitimize cryptocurrency as a hard asset, and the partnership with Starbucks will help bring cryptocurrency usage to the average user.
Somewhere in the future, one can imagine buying their daily cup of coffee with just a scan of their mobile wallet and that is a very exciting future.
Like what you read? Also check out our Blockchain Explorer Guide.