Bakkt, the joint digital currency platform project between Microsoft, Starbucks and ICE, will not support margin trading, it has been announced. Rather, it will facilitate institutional investment through infrastructure provision.
Bakkt was announced to much fanfare three weeks ago when the story broke that three of the biggest business enterprises in the world would be collaborating on a joint cryptocurrency project, and hopefully one which would make a significant contribution towards bridging the gap between crypto and mainstream adoption. However, up to this point most discussion of the place in the cryptosphere Bakkt will fill has been speculative.
Yesterday however, the company’s CEO, Kelly Loeffler, used a blog post on Medium to outline the main objectives that the platform is aiming to accomplish. These are centred around:
- Transparent and efficient price discovery
- An infrastructure for institutional investments
- A consistent regulatory construct
Particularly interesting is the first point, which refers to forming a price for bitcoin that is honest and can be trusted, so that buyers know they are paying a fair price rather than an inflated one. In aid of achieving this, Loeffler stated that there will be no margin trading at Bakkt; they will have all their requisite funds secured before any trades are made.
“A critical element to price discovery is physical delivery. Specifically, with our solution, the buying and selling of Bitcoin is fully collateralized or pre-funded. As such, our new daily Bitcoin contract will not be traded on margin, use leverage, or serve to create a paper claim on a real asset,” writes Loeffler.
You might be thinking, “What? checking the price of bitcoin is easy”, but inflated prices can be a problem. Amid the economic crisis unfolding at the moment in Turkey, many people are buying bitcoin in order to protect their savings against a lira which is rapidly losing value. Meanwhile, prices for bitcoin have been inflated by as much as $500 on some Turkish exchanges.
So, what does this promise of fully collateralised and pre-funded trading mean? Essentially this is good news for market integrity. Margin trading can lead to disaster, as – in this case – it essentially means using money you don’t have to gamble on crypto: great when it works out, messy when it doesn’t. We’ve all heard stories of those people who took out loans against the value of their houses to buy bitcoin in November and December of 2017 – no one wants to be those people now. Furthermore, margin trading and similar practices are in large part what led to the depth and severity of the 2008 financial crisis.
But Loeffler’s announcement has been greeted as good news. With Bakkt’s digital platform set to go live in November, Garret See of the DV Chain investment firm, has said that physically settled futures contracts will enable better arbitrage trades and make trading a lot less risky.
Image Source: “Flickr”
Alex has been putting words on paper since he was old enough to hold a pen; when he bought his first bitcoin in January 2017, those words discovered their place within crypto as well. He holds a master’s degree in international relations from Leiden University in the Netherlands, and his special expertise lies in European cryptocurrency regulation.