Bitcoin and the NYSE — unpacking Bakkt’s BIG plans » Brave New Coin


Bitcoin is no stranger to the endorsement of industry giants, attracting the support of Twitter founder Jack Dorsey, Paypal co-founder Peter Thiel, and former hedge fund manager Mike Novogratz. But the most resounding endorsement yet comes from a slightly more obscure financial titan—Jeff Specher, the Chairman of Intercontinental Exchange (ICE) which owns the New York Stock Exchange (NYSE) and many other exchanges internationally. 

Bakkt—a play on the word ‘backed’ from the phrase ‘asset-backed securities’—is Specher’s latest venture, and aims to achieve nothing short of making bitcoin a trusted global currency by creating a federally-regulated crypto ecosystem.

This vision is supported by Microsoft, who will lend its cloud expertise; Starbucks, which will help pioneer mobile payment, and the Boston Consulting Group, who will assist ICE in forming the new company—an all-in-one bitcoin exchange for trading, custody and delivery, that will use  ICE’s existing trading infrastructure to cater to retail investors, institutional investors and consumers.

With the full force of these industry leaders behind them, the launch is planned for November,  after fourteen months of behind the scenes preparation by founder Specher and his wife Kelly Loeffler, who is Bakkt CEO.

A regulated onramp for investors

By providing an approved custody solution combined with a regulated exchange, Bakkt propose to make settlement, storage and delivery of bitcoin as simple as it is for stocks. This could mean that as soon as November, fund managers will be able to buy and hold bitcoin for their clients.

For retail investors, this will significantly broaden the scope of bitcoin investment choices—allowing baby boomers to put bitcoin in their 401k with insurance against hacks or failures, and paving the way towards a range of different bitcoin-backed ETFs or mutual funds.

For institutional investors, Bakkt plans to provide a fully regulated onramp, which will combine a major CFTC-regulated exchange with CFTC-regulated clearing and custody. Although this is still pending approval from the commission and other regulatory bodies.

“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant and consumer participation in digital assets by promoting greater efficiency, security and utility,” said Kelly Loeffler, CEO of Bakkt. “We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”

Starbuck’s mobile payments

Although misinterpreted by some media outlets, Starbuck’s involvement does not mean that you will be able to buy your morning coffee with crypto, or that it is forging its own Starbucks coin. What it does mean, however, is that the retailer is applying its expertise in mobile payments to help others accept bitcoin—as Starbuck’s mobile payment app is a leader in the field, and has more users than Google Pay and Apple Pay.

Bakkt claim that its crypto ecosystem will allow bitcoin to effectively disrupt the world of retail payments—shifting customers from swiping credit cards to scanning bitcoin wallets. This will form a lucrative source of revenue for the company and it also plans to profit by charging fees for trading, and storage:

“Bakkt’s revenue will come from two sources,” says Loeffler, “the trading fees on the ICE Futures U.S. exchange, and warehouse fees paid by the customers that buy Bitcoin and store with Bakkt.”

An ethos clash

While Bakkt’s goals are laudable—creating trust in the network and increasing bitcoin adoption, there are those who think that providing an infrastructure to institutionalise digital currencies on a large scale is not the answer.

In fact, some claim that the project will be an attack on the very principles bitcoin is built on: “A regulated exchange with a custodian in the middle contradicts the basic idea of Bitcoin,” says Abhishek Punia, a cryptocurrency analyst at venture capital firm Draper Associates. “Bitcoin was designed to be decentralized, without intermediaries taking fees. A regulated exchange may be popular for a short period of time, but it’s not the future. The future will be the original idea of a peer-to-peer network.”

Sprecher, an engineer who tinkers with vintage race-cars as a hobby, disagrees, telling Fortune that Bitcoin is “the epitome of a broken model that if fixed, could change the world.”

Further operational details are expected to be announced in the coming weeks.