Opinion: Bakkt was the talk of the town when it released a few weeks ago, with many cryptocurrency traders calling it the biggest news of the year. However, it is important to look into what it will do for the price of Bitcoin [BTC], as it is not a cash-settled contract.

When news that the parent company of the New York Stock Exchange [NYSE], InterContinental Exchange [ICE] would be launching a new contract for the coin in partnership with Microsoft and Starbucks, the price did not react in a positive way. With the market being as it was in the throes of constant rejection of an Exchange-Traded Fund by the United States Securities and Exchanges Commission, the price did not make any movement with regards to the news. This led to it flying under the radar for a while, and its implications for the market may not be seen until its launch.

To understand how the product will affect the market, it is important to first understand what it is. Bakkt is a collateralized vehicle for Bitcoin that comes along with warehousing solutions. Moreover, it will not be traded on margin [as seen on exchanges like CEX.IO] or use leveraged [as seen on BitMEX].

It is a futures contract which functions on a daily basis, where the actual asset is removed from storage and kept in a warehouse until the expiration of the futures contract. This is in contrast to the method used by existing futures contractors such as CBOE, where the asset is used as collateral and the contract is settled in cash.

The proposition of the contract by a company with an established presence such as ICE will ensure that the contract will be approved by the Commodities and Futures Trading Commission [CFTC]. This means that the contract is all but approved at this point, with the next object of focus being on the price of Bitcoin.

While it has not exactly been an easy year for Bitcoin, the reason for that has mainly been the volatility. Experts state that the volatility of the cryptocurrency market is due to the presence of retail investors and the large absence left by institutional investors.

Even as there are statements of “weak hands”, general emotional buying and selling by investors in Bitcoin is seen every time the market shifts. This is not seen in more mature markets, where institutional investors hold a large part of the market with retail investing being a much smaller part. The effect of institutional investors is best observed in the stock market, where prices are not as volatile even as they demonstrate natural market movement.

However, the price has shown itself to move above levels more than what one would usually expect, as seen when it hit the all-time high of $20000. It is most likely that we will see a similar spike in price, with the coin finding newer highs as is indicative of parabolic movement. This will happen due to a few reasons.

Firstly, on the technical side, the holding of actual Bitcoins instead of cash-settled contracts means that they will be removed from circulation, thus promoting a healthy growth of the daily market. Even as this might become a concern with higher amounts of adoption, it presents an overall positive case for the price of Bitcoin as it will be utilized on a daily basis.

Secondly, adoption has always been one of the core tenets of those who want to see the coin succeed, as they believe that it is one of the core steps towards cementing its position as a Medium of Exchange [MoE]. This, along with being one of the most integral steps towards a worldwide adoption of the coin, will undoubtedly drive up the price.

Even as there is no clearly demarcated relationship between the trading volume of Bitcoin and the price, general movement of the average populace towards Bitcoin will increase the number of players in the market.

This might as well be the path to mass adoption as dreamt of by many cryptocurrency enthusiasts, which will lead to the daily use of Bitcoin as a deflationary and relatively ‘free’ alternative to fiat currencies.

Thirdly, general market sentiment by retail investors will push the price higher, due to the offering of the service by a trusted party and the entry of institutional players in the market. This is also true for investors already involved with the New York Stock Exchange, as it is likely that Bakkt will see a ready integration at launch for those investors as well.

The move of Bakkt into the cryptocurrency market later this year will undoubtedly see the price move above the $20000 range and continue to find newer highs as time passes and greater adoption of the technology occurs. This might as well be the moment all HODLers were waiting for.

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2018-08-31 00:00:23


Anirudh VK

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