Permalink to Bakkt – Why a Successful Launch Could Boost the Cryptocurrency Market

When (or whether) Bakkt successfully launches its Bitcoin exchange platform could impact the direction of the entire cryptocurrency market.

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Bakkt has high ambitions for what would be the first-ever Bitcoin-settled futures contract. For Bakkt seeks to create more than a liquid, well-policed, US regulatory-approved market to trade bitcoin. It also plans to provide a scalable system for consumers, merchants, and businesses to use Bitcoin to conduct cost-efficient global commerce.

Granted, as reported in The Daily Hodl, Bakkt is not the only game in town. Other exchanges are also vying to launch physically delivered cryptocurrency futures, such as Hong Kong-based CoinFLEX. But how could news on US-based Bakkt still potentially impact the cryptocurrency market?

According to a study by the Bank for International Settlements (BIS), announcements of general bans on cryptocurrencies, or restrictions that put them under the jurisdiction of securities law, have the greatest adverse effect on cryptocurrency prices. Conversely, announcements on ‘specific legal frameworks,’ tailored to cryptocurrencies and initial coin offerings, coincide with strong market gains. The study’s authors surmise that the market generally reacts positively to progress on ‘specific legal frameworks’ because such regimes tend to have milder oversight rules than do securities law.

In applying to the U.S. Commodity and Futures Trading Commission (CFTC) instead of the SEC for approval of its platform, Bakkt seeks just such a special regulatory framework. So, if the platform successfully launches as planned on January 24th, or slightly later due to the holidays, cryptocurrency prices could experience a bounce, or conceivably find more sustained support. 

Favorable regulatory announcements have coincided with a 1.52% rise in Bitcoin prices, for example, within 24 hours, according to the BIS report, while unfavorable announcements have coincided with a 3.1% drop. The price move tends to be larger within the 10 days surrounding the announcement, according to the study, with progress on specific legal frameworks boosting the price of Bitcoin from 5% to 22%.

The market reaction could go either way, depending on how Bakkt fares. The March, 2017 SEC rejection of  a proposal to alter stock exchange rules to allow a Bitcoin ETF caused Bitcoin to drop 16% in the five minutes around the announcement, according to the report. And Bakkt’s launch has been twice postponed, most recently, to January 24th, 2019. But the outlook seems increasingly promising. According to The Wall Street Journal, Bakkt “…is expected to soon get regulatory approval.”

As we state in our previous post, Bakkt has plenty going for it.

“Its owner, ICE (Intercontinental Exchange Inc.), has amassed an extraordinary record of creating, revitalizing, and optimizing regulated financial exchanges. Not only does ICE operate six leading regulated financial exchanges, including the New York Stock Exchange, but it sells data on exchange pricing and analytics, its biggest revenue generator. It would be hard to find a more experienced operator capable of securing the institutional and regulatory confidence to create a well-policed, liquid market.”

If Bakkt gains regulatory approval and successfully launches its platform, its quest to add market integrity and fundamental value to Bitcoin could provide a confidence boost to the entire cryptocurrency market.  

Brian Sewell is Founder of Rockwell Trades, an OTC cryptocurrency trading service.