The big daddy of trading exchanges is coming to play in cryptocurrency.
London-based Intercontinental Exchange (ICE) recently announced the launch of a startup called Bakkt (pronounced “Backed”) which will develop a trading platform and infrastructure for cryptocurrency trading. ICE has partnered with the Boston Consulting Group (BCG), Microsoft Corp. (MSFT), and Starbucks Corporation (SBUX) and several notable players in the crypto ecosystem, such as Pantera Capital and Susquehanna International Group, for the startup. According to a press release issued by ICE, it is “working to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.” “The Bakkt ecosystem is expected to include federally regulated markets and warehousing along with merchant and consumer applications.”
Among Bakkt’s first orders of business will be to launch a futures contract with 1-day physical delivery of bitcoin, based on approval by the Commodity Futures Trading Commission (CFTC), in November of this year. “These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies,” the ICE press release stated. “In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.” The contract will utilize Microsoft’s cloud offering for trading. The bitcoin futures contracts at Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (Cboe) do not involve physical delivery of bitcoin and are cash-settled. They are based on the cryptocurrency’s price at underlying trading exchanges. (See also: Why Bitcoin Futures Are Poised For A Change).
The presence of Starbucks in the list of companies involved in the effort led to speculation that it might begin accepting bitcoin as payment for products at its cafes. However, the company has quashed those rumors in a statement to Vice publication Motherboard. The company stated that Bakkt’s technology “will convert digital assets like Bitcoin into US dollars, which can be used at Starbucks.”
What Does ICE’s Entry Into Bitcoin Trading Mean For Crypto Ecosystem?
There are several benefits for cryptocurrency trading from ICE’s entry.
The biggest one is scale. ICE, which owns several trading platforms across the world, is a behemoth of sorts. It has unparalleled heft and reach among exchanges and its entry is a precursor to increased activity by institutional investors in cryptocurrency trading. In an interview with Fortune, Coinbase Vice President Adam White said there was, at least, $10 billion in institutional capital waiting for cryptocurrency trading. ICE’s platform will provide the guardrails for institutional capital to enter this space. Introduction of physical delivery also signals a maturity of custody solutions for bitcoin. In recent times, several startups and players in the cryptocurrency ecosystem, including Coinbase and Goldman Sachs (GS), have launched or announced plans for cryptocurrency custody solutions. (See also: Coinbase Tries To Reel In Institutional Investors).