In the dynamic world of cryptocurrency, few events in 2019 were as closely watched as the launch of Bakkt. Backed by the Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, Bakkt aimed to bring institutional-grade trading to digital assets. This article explores Bakkt’s journey, its strategic moves, and its potential to shift bitcoin pricing power toward traditional financial markets.
The Genesis of Bakkt
Bakkt was first announced in August 2018, when ICE revealed plans to create a regulated platform for trading digital assets. By the end of that year, the venture had secured $182.5 million in funding from a consortium of prominent investors. These included Microsoft’s venture arm M12, Boston Consulting Group, PayU (a fintech firm under Naspers, Tencent’s largest shareholder), Horizons Ventures (backed by Li Ka-shing), and Galaxy Digital, among others.
The project was met with great anticipation. Many expected Bakkt to serve as a gateway for institutional investors to enter the crypto market, potentially acting as a catalyst for a new bull run. Given ICE’s reputation and the caliber of its investors, analysts speculated that Wall Street might gradually wrest control of bitcoin pricing from existing cryptocurrency exchanges.
Delays and Adjustments
Despite high expectations, Bakkt faced multiple delays. It wasn’t until September 23, 2019, that the platform finally launched its first two bitcoin futures products—nearly a year behind the original schedule.
These setbacks did not deter ICE, which has built a formidable reputation over two decades through strategic acquisitions. The company owns 14 securities and futures exchanges, including the NYSE, and five clearinghouses. Its trading portfolio spans energy commodities, soft commodities, currencies, and index futures. In 2018, ICE reported $5 billion in net revenue, ranking it first globally.
Bakkt’s approach differs significantly from that of typical crypto exchanges. The platform explicitly targets institutional investors, emphasizing regulatory compliance and security. CEO Kelly Loeffler, former head of digital assets at ICE, stated that Bakkt aims to create a scalable entry point for institutions, merchants, and consumers by enhancing efficiency, security, and utility. The name “Bakkt” itself is derived from “asset-backed securities,” reflecting its foundation in regulated financial principles.
To achieve these goals, Bakkt implemented several key measures:
- Applying to the New York Department of Financial Services for trust company status, enabling it to serve as a qualified custodian for digital assets.
- Seeking approval from the Commodity Futures Trading Commission (CFTC) to operate a regulated bitcoin futures exchange.
- Leveraging ICE’s regulated clearinghouses for settlement services.
- Deploying institutional-grade security hardware, customized wallet systems, key management protocols, and cybersecurity measures to address risks unique to digital assets.
A Rocky Start and Quiet Resurgence
Bakkt’s launch was underwhelming. On the first day, its monthly bitcoin futures contract volume was just 72 contracts (each representing one bitcoin), totaling approximately $600,000. This paled in comparison to the Chicago Mercantile Exchange (CME), which saw 75 times that volume.
However, Bakkt’s fortunes gradually improved. By October 25, daily trading volume for its monthly contracts surpassed $10 million. As of December 20, the platform had recorded 26 trading days with volumes exceeding that threshold. On December 18, Bakkt set a new record: 6,601 monthly bitcoin futures contracts traded, valued at $47.3 million—nearly 80 times the volume from its launch day.
This growth occurred even as bitcoin’s price dipped below $7,000. Weekly data showed that during the week of December 18, monthly contract volume exceeded $100 million for the second time, marking a 41% increase from the previous week.
Expanding the Product Suite
After overcoming initial challenges, Bakkt moved quickly to expand its offerings. On December 9, 2019, the platform launched two new products: a cash-settled monthly bitcoin futures contract and a monthly bitcoin options contract. The futures product saw 1,268 contracts traded on its first day, while the options contract—the first of its kind approved by the CFTC—executed its first block trade on December 12, with participation from Galaxy Digital and XBTO.
Adam White, Bakkt’s Chief Operating Officer, noted that the company aims to emulate ICE’s success with products like Brent Crude Oil Futures by developing a comprehensive suite of digital asset instruments.
Beyond Trading: Custody and Payments
Bakkt’s ambitions extend beyond futures and options trading. The company has also ventured into digital asset custody and payments. Its custody solution, Bakkt Warehouse, was developed in-house and enhanced through the acquisition of Digital Asset Custody Company (DACC). Bakkt has partnered with Bank of New York Mellon for custody services and holds a trust charter from the New York State Department of Financial Services.
In payments, Bakkt announced plans to launch a consumer-facing cryptocurrency application in the first half of 2020. Starbucks was revealed as its first partner, with reports indicating that the coffee giant also holds an equity stake in Bakkt. To lead this effort, Bakkt hired Chris Petersen, a former Google payment product expert, to develop Bakkt Pay—a cryptocurrency wallet designed for everyday transactions.
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Frequently Asked Questions
What is Bakkt?
Bakkt is a digital asset platform founded by the Intercontinental Exchange (ICE). It offers regulated bitcoin futures and options contracts, primarily targeting institutional investors. The platform emphasizes security, compliance, and institutional-grade infrastructure.
How does Bakkt differ from other crypto exchanges?
Unlike many cryptocurrency exchanges, Bakkt operates under federal regulatory oversight. It uses physically-settled futures contracts, meaning traders receive actual bitcoin upon contract expiration. This contrasts with cash-settled contracts used by some competitors.
Why did Bakkt’s launch generate so much interest?
Bakkt’s backing by ICE and its focus on institutional investors suggested that Wall Street was becoming more involved in cryptocurrency markets. This was seen as a step toward legitimizing bitcoin and potentially shifting pricing power to traditional financial institutions.
What challenges did Bakkt face at launch?
Bakkt experienced multiple delays due to regulatory hurdles. Its initial trading volumes were low, but the platform gradually gained traction as it introduced new products and attracted more participants.
What are Bakkt’s future plans?
Bakkt intends to expand its product lineup to include additional digital asset derivatives. It is also developing consumer payment solutions and custody services to create an end-to-end ecosystem for digital assets.
How does Bakkt ensure security?
Bakkt employs institutional-grade security measures, including customized wallet systems, multi-layered encryption, physical security protocols, and compliance with anti-fraud regulations. Its custody services are designed to meet the highest standards of asset protection.
Conclusion
Bakkt’s entry into the cryptocurrency market marked a significant milestone in 2019. Despite a slow start, the platform demonstrated resilience and growth, gradually increasing its trading volumes and expanding its product offerings. With strong backing from ICE and a focus on regulatory compliance, Bakkt has the potential to reshape how institutional investors engage with digital assets. While it is too early to declare a full-scale shift in bitcoin pricing power, Bakkt’s progress suggests that Wall Street is poised to play an increasingly influential role in the crypto ecosystem.