The Bakkt trading platform will be going live on January 24, 2019, according to recent media reports. The platform was developed with support from The Intercontinental Exchange (ICE), who operates the New York Stock Exchange (NYSE), as well as 22 other major global exchanges.
A Medium post informed the public that they would be “targeting” January 24th as the launch date, though they didn’t say for certain that Bakkt would go online. This news comes at a trying time for digital assets, which have been under severe selling pressure all week.
The value of the entire crypto sector has fallen well below $200 billion USD, and many of the major cryptos are trading at price levels that haven’t been seen since last year. ICE’s commitment to launch Bakkt appears to be a vote of confidence in cryptos, and a sign that digital currencies could attract investors in the medium-term.
Bakkt is Getting Ready for Business
Bakkt CEO Kelly Loeffler said via the Medium post that,
“given the volume of interest in Bakkt and work required to get all of the pieces in place,” they have chosen the date in January to, “ensure that our participants are ready to trade on Day 1.”
Ms. Loeffler went on to say that Bakkt is working with the US Commodity Futures Trading Commission (CFTC) in order to ensure that the,
“Bakkt™ Bitcoin Daily Futures contract and the Bakkt Warehouse,” meet regulatory requirements, and that, “These products represent a critical shift in the evolution of crypto markets toward more accessible, useful, and regulated instruments.”
Bakkt will be offering Bitcoin cold storage for their clients, which may be one of the most secure ways to hold cryptos. Unlike software wallets, the private keys are stored in a computer that isn’t connected to the internet, so stealing them is pretty tough. Bakkt won’t be the first firm to offer a cold storage service. They are connected to (controlled by) ICE, which may attract a new kind of client that other crypto storage companies couldn’t.
Physically Settled BTC Futures
Bakkt recently announced they would be offering physical settlement of their Bakkt Bitcoin (USD) Daily Futures Contracts, and that the contracts had satisfied regulatory requirements. They will be settled by ICE Clear U.S., which will add a lot of credibility to the product. Physically settled BTC contracts contrast the current futures contracts that are traded on the Chicago Mercantile Exchange (CME), which are settled in cash. Instead of receiving BTC when a contract expires, the buyer will receive cash if the contract gained in value.
The Federal Reserve cited the introduction of the CME contracts as a contributing factor in the decline of bitcoin prices, but there is no actual connection between bitcoins and the CME contract. This suggests that the effect is wholly psychological and somewhat tenuous.
Where is the Bottom?
Bakkt is one of a few new trading platforms for cryptos. Despite the growing public knowledge of cryptos and how they function, the price floor seems to have evaporated. Bitcoin prices are often used to gauge the health of the entire crypto sector, and if that is the case, cryptos may have a rough 2019 waiting for them.
The real issue today is that there is no fundamental value for most cryptos. Major banks and other corporations are using the more popular blockchains, like Ethereum, but they don’t need the crypto in any sufficient quantity. Crypto prices aren’t likely to enter a prolonged period of gains until people hold them as a store of value. Today they are still somewhat speculative in nature, which doesn’t bode well for their value over the next few months. Over the longer-term, exchange platforms like Bakkt are in a great position to thrive!
The Hunt for Yield
The total amount of money (market cap) floating around in the cryptocurrency markets pales in comparison to those locked up in equity, bonds, derivatives and other traditional financial instruments. With interest rates at record lows and in some countries at negative levels, investors are looking for new ways to make money.
Bakkt estimates that the digital asset marketplace could be worth around $270 billion dollars.
Many early crypto investors have reported returns in excess of 10 or even 100 times in certain cases. Volatility in other markets remains low and equity prices are at near all-time highs. It appears that with the announcement of their federally regulated and trusted exchange Bakkt may attract big investors into cryptocurrency in the search for yield.
What Is Bakkt?
A recent press release via Business Wire went on to explain the purpose of the project:
Along with Microsoft, the project has already secured partnerships with the likes of Starbucks, BCG, and other big names. One of the first pilots will be to allow consumers to buy their daily morning dose of caffeine at Starbucks with Bitcoin.
Bakkt’s main offering is expected to be a futures exchange and clearinghouse for single day, Bitcoin contracts for physical delivery. A rather amusing term comes when considering Bitcoin’s purely digital nature. Regardless, this is still good news for the market overall as trading will involve the actual buying and selling of cryptocurrency. In comparison, exchange traded funds don’t actually trade in Bitcoin and are instead settled in USD.
Bakkt Expertise
Bakkt looks to expand their existing expertise into the blockchain arena. Bakkt will also provide a warehousing solution. While they gave no details at the time, they will presumably follow other cryptocurrency exchanges and offer cold-storage options in the coming months. The August press release noted that the futures and warehousing platform would be available as soon as this month (November 2018).
Investors of the Bakkt ecosystem include the likes of Pantera Capital, Susquehanna International, and the highly vocal founder of Galaxy Digital Mike Novogratz, who already has a stake in a fair few cryptocurrency pies.
Barriers to Entry
Despite the optimism outlined by the project, there are still a number of obstacles that face institutional investors looking to get involved in crypto.
Custodial Services & Regulation
Getting hold of and securing crypto assets in large quantity is still a concern for many would-be buyers. There probably isn’t a month that goes by without news of a hack or security flaw highlighted somewhere. Managing your own money can be stressful. Managing the money of a pension or retirement fund is another matter altogether.
The Bakkt ecosystem plans to provide an institutional-grade custodial service from the get-go. Furthermore, while other projects and exchanges have suffered from regulatory troubles, Bakkt will be working with the CFTC and other regulators to re-assure institutions that any potential investments will be compliant before trade begins.
Liquidity
There is no guarantee that contracts will be easily tradeable right from the start. But, given ICE’s deep exchange experience, they should be able to attract a number of capable market makers to get the ball rolling.
Criticisms
ICE’s focus on the project is clearly on providing the regulation needed for large players to safely invest. Cryptocurrency, however, was designed to be a deregulated worldwide exchange of value. Yet, Bakkt intends to create an open yet regulated global ecosystem of digital assets.
This statement appears to contradict itself and it’s unclear how the company plans to handle regulation in other countries where it has no authority. Moreover, questions remain on how Bakkt differs from other well-established exchanges. Coinbase and Gemini have significantly more experience in the crypto space and include institutional trading services.
In Closing: Bakkt
Will institutional buyers really usher in the next wave of the cryptocurrency bull market?
Despite plenty of predictions from traders, tweeters, and hopefuls alike, it’s almost impossible to tell. Regardless, this is still good news for crypto. More exposure to digital currencies can only be a good thing.
ICE runs the largest stock exchange in the world. The introduction of this new platform indicates that mainstream adoption may be just around the next corner. Bakkt is not offering anything particularly new to the crypto investment landscape. They are, however, Bakkt by a highly trusted name and several big companies. That alone might be all that’s needed to tip the scales in favor of the next flood of money into the markets.
About tZero
A DLR (Digital Locate Receipt) is a digitized version of a traditional REG SHO locate. tZERO’s DLR platform provides its clients with a technological solution to automate the traditional REG SHO locate process to meet operational and regulatory requirements. tZERO’s DLR platform captures all inventory and audit trail information and stores that information permanently on a proprietary blockchain.
- DLRs are created when Inventory Providers place on the tZERO DLR platform either:
- A file showing available inventory on an ftp server in an overnight process or;
- Posting individual stock inventory and offers into the tZERO portal.
- Short Sellers (Users) are able to view and purchase DLRs through multiple ways as outlined below:
- tZERO’s Neotrader web portal – accessible through any internet browser with a Username & Password.
- Proprietary FIX API – Users can access the tZERO “route” through any front end trading application or OMS.
- tZERO’s Revo – tZERO’s stand-alone, proprietary trading application.
- The tZERO DLR platform matches Inventory Providers and Users who have placed Bids and Offers overnight. At 8:30 am Eastern Time, the tZERO DLR Platform matches corresponding bids and offers, and generates DLR purchase reports.
- From 8:30 am to 8:00 pm Eastern Time, Inventory Providers and Users are able to post Bids and Offers in a transparent environment to purchase a DLR in real-time.
- When Users purchase a DLR, they are then able to short the underlying stock up to the quantity of DLR’s they’ve purchased for the day. The DLR confirm is sent to the Users’ front-end technology provider as well as their executing broker to ensure that the stock is able to be shorted in their system and that the executing broker is aware of the DLR.
- Users holding overnight short positions can also utilize the tZERO Platform so that proper arrangements can be made to deliver stock on settlement date.
- All DLR creations and purchases are registered to the blockchain creating a permanent order trail and accessible digital record.
- Users accrue fees based on the DLR price and routing costs. Inventory Providers generate revenue based on the DLR price minus creation & routing costs.
Features
t0.com, Inc. (“tZERO“) is a majority owned subsidiary of Overstock.com, focusing on the development and commercialization of financial technology (FinTech) based on cryptographically-secured, decentralized ledgers – more commonly known as blockchain technologies. Since its inception, tZERO has pioneered the effort to bring greater efficiency and transparency to capital markets through the integration of blockchain technology. More information is available at tZER0.com.
Token Distribution
The pre-sale to strategic purchasers was limited to $100 million and is sold out. The remaining $150 million is open to all accredited investors. Accreditation and participation will take place through: https://www.saftlaunch.com/project/tzerosaft
- During the period commencing on December 18, 2017, which is anticipated to run through January 18, 2018 (the “Pre-Sale Period”), tZERO will enter into SAFEs* with strategic purchasers identified by the Company as accredited investors.
- During the period which is expected to commence on January 18, 2018 and to run through February 16, 2018 (the “Subsequent Sale Period”), tZERO will enter into SAFEs with other accredited investors.
- The Pre-Sale Period and the Subsequent Sale Period may each be extended or shortened in the Company’s sole discretion. Any change to such dates will be announced by press release or other available means of notifying purchasers.
- *) A SAFE is a “Simple Agreement for Future Equity” – a contract that will later be redeemed for tokens.
Special Terms and Restrictions
tZERO Tokens when offered and sold will not be registered under the US Securities Act of 1933 (the “Securities Act”), the securities laws of any state, or any other jurisdiction, nor is such registration contemplated. tZERO Tokens will be offered and sold pursuant to one or more exemptions from the registration requirements of the Securities Act and any other applicable jurisdiction.
In all jurisdictions, the offer to sell and solicitation to buy of tZERO tokens is directed solely to qualified institutional investors, qualified professional investors, and those other sophisticated persons to whom offers and solicitation may be made without any licensing, registration, qualification, or approval under applicable law (a “Qualified Person”). Special restrictions and terms apply for residents of the EU, Australia, Hong Kong, Israel andSingapore. Read more here: https://www.tzero.com/sellingrestrictions.pdf
Token Distribution Timeline
Tokens issued will be available to accredited investors in the public sale beginning inJanuary.
Roadmap
● In March or April 2018, the company plans to add property titles from one chosen country to check out the system functionality. The next step of the plan is to roll out ata global scale.
Product Stage
- In 2015, Overstock acquired SpeedRoute, a Wall Street trade routing securities firm already licensed by the SEC. Byrne felt that building an exchange from scratch was too risky.
- Instead, he wanted to buy something in Wall Street that was already pre-SEC approved.
- SpeedRoute already had an alternative trading system (ATS) set up, so it only needed minor modifications to get it ready for selling blockchain shares. “We changed it and altered it so it could handle blockchain instruments,” he said. By doing so, Overstock turned the platform into what is now tZero.
- tZero has the only automated trading system approved by the SEC that can handle
- blockchain tokens. They are already registered as a broker dealer. I repeat, they have a tremendous head start over anybody else.
Token Usage
The tZERO token will incorporate profit-sharing features of a security as well as utility features of an app token, including:
- Token holders will be able to use the tZERO token to pay for fees on the ATS and payment of such fees using tZERO tokens will grant up to a 25% discount as compared to payments made using U.S. dollars. The tZERO token is expected to have additional functionality and token holder benefits to be announced at a later to date and will be included in the offering memorandum; and
- tZERO believes its token will be the first to offer a percentage of tZERO’s profits, distributed as a quarterly distribution paid into tZERO token holders’ digital wallets.
Token holders can buy blockchain-enabled digital locate receipts, along with Robo-advising services, online retail brokerage services, insurance products and education services dispersed in an app store-like environment.
Opportunities
● This is the first ICO from a publicly traded company. That in itself is huge.
● Patrick Byrne has publicly stated that tZERO platform already has an $8bn inventory as will have $120bn at launch time.
● probably the most hyped ICO to date, pre-sale sold out 100m+ USD by accredited investors
● 10,000+ people subscribed on SAFTlaunch, which is the platform that is going to be used for the 2nd leg ICO sale
● IF they are SEC regulated, it also means american investors are back allowed to investing in ICO’s which means a huge amount of capital and market that is available again for ICO’s
● This ICO is certainly not thought up yesterday. It has been planned for years, with media coverage to prove it.
Concerns
● Since they are SEC licensed and trying to disrupt the wall street market, it is a tough task to fulfill, nowadays most ICO’s are actually going overseas to have easier regulations to run their ICO’s, so this can a hard negative if companies just don’t see the benefit of being regulated by the SEC.
● Overstock has not disclosed the percentage of its token pool on offering, price per token nor the discount available to participants in the offering.
Conclusion
The hype is crazy – already 100m USD raised in 1 day, very little chance this will not be a profitable ICO in the short run, and might be good also for long run.
Flipping Potential
In Closing: tZero
It might be a very long term hold, with SEC companies it is always going to take a long time but if they succeed, you will have a share plus dividends whilst holding. If Byrne’s ambition of tokens taking over from the traditional stock markets will come true which is not unthinkable at all, then tZERO will have positioned itself to become a main player in that industry.
If you are currently holding Ethereum or the other most recommended cryptocurrency, Bitcoin, we highly recommend putting them in cold storage via an SDIRA (self-directed individual retirement account) with one of our most recommended Cryptocurrency IRA companies.
Do you have any further questions on the tZero or Bakkt? Ask below!
