On Friday, the International Exchange, the company that owns the New York Exchange revealed its plan to bring bitcoin to the mainstream through the formation of Bakkt, to offer a regulated market for the digital asset. The company set to be launched in November will pave the way for mutual funds, ETFs and other products and attracting more institutional investors along the way.
And to sweeten the deal, the company is partnering with Microsoft to provide cloud services and Starbucks as it seeks to entrench the day to day use of bitcoin for transactions.
By doing this, Bakkt is trying to net institutional investors who have kept away from the market mostly due to lack of regulation. The initiative may as well see more fund managers offering bitcoin as an investment.
Physically delivered bitcoin
“As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearing house plan to launch a 1-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to CFTC review and approval,” the company said in a statement.
Kelly Loeffler who has been ICE’s head of digital assets will now become the CEO at Bakkt. “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,” she said in a statement.
“We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce,” she added.
Bakkt’s plan is to have Starbuck’s customers paying for their coffee from their bitcoin apps, the same way they would use their credit cards. If it gains wide acceptance, it could help see bitcoin entering into more mainstream use.
High volatility a threat
Right now, the biggest threat to this goal is the high volatility in the market. The leading cryptocurrency has for example surged from $6400 to $8400 in the last three weeks and dropped back to around $7100 at current rates.
It is this quality of bitcoin that has prevented wider use in daily transactions – users are naturally reluctant to spend something that could shoot in value the next day. Similarly, retailers are also wary of accepting a payment method that could significantly drop in value. Bitcoin is for instance just a fraction of its value of nearly $20,000 in December.
It has long been argued that more institutional investors will bring more stability to the market. However, the lack of regulations is a major point of uncertainty. Sporadic crackdowns for much of the first half of this year have also spread fears in the nascent market.
Cracking online payments market
Online payments is a trillion dollar market and Bakkt is obviously looking to crack it. To do it, it must target the younger users who have substantially invested in cryptos.
The choice of Starbucks, a major retailer is a strategic one. It could serve as a good way of introducing more customers to bitcoin.
“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted, and regulated applications for consumers to convert their digital assets into U.S. dollars for use at Starbucks,” Maria Smith, Starbucks VP for partnerships and payments said in a press release.
Bakkt has reportedly been under development for more than a year.
Rivals CME and CBOE launched their bitcoin futures in December.