Bakkt, which aims to create the first federally regulated cryptocurrency marketplace, is reportedly eyeing the BitLicense from the New York state regulator as CFTC concerns over its physical Bitcoin custody services is causing it to delay time and again.
Bakkt’s crypto physically-delivered contract was first slated to debut in November 2018, but Georgia-based Intercontinental Exchange, which controls Bakkt, pushed back the deadline several times as the Commodity Futures Trading Commission has reportedly declined to approve it so far.
While Bakkt CEO has tried to remedy concerns that the firm might be sitting on its hands, the whole process has been on a standstill for over six months as CFTC is yet to give a green signal to the platform.
In the most recent news, the owner of the New York Stock Exchange is considering seeking a license from NY regulator that would permit Bakkt itself to hold custody of customers’ tokens, Bloomberg today quoted three unnamed sources.
“Should ICE secure a state license it would still need sign-off from the CFTC on the broader Bakkt project,” they added.
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The Custody issue
A while ago, the reports suggested that the main reason why the CFTC puts Bakkt’s application on hold is that there is a dispute surrounding how the institutional platform will have custody over its customers’ crypto holdings. In particular, the agency requires the startup to disclose its detailed business plan, having the firm register as a trust company and allows a public comment period, which would have further delayed approval.
In the meantime, Bakkt continues to bring on new talents to build out its crypto platform. This included poaching key executives from rivals such as its current COO, Adam White, who joined from Coinbase.
Intercontinental Exchange, along with Starbucks, Microsoft, and BCG, is backing the new company that aims to facilitate cryptocurrency trading for Wall Street firms in a way that is just as easy as trading traditional assets.
The Bakkt venture will leverage Microsoft cloud solutions and ICE’s expertise to create a federally regulated ecosystem along with merchant and consumer applications. Its first use cases will focus on Bitcoin trading and exchange against fiat currencies.
The established futures exchanges, including those run by Cboe Global Markets and CME Group, already offer bitcoin futures, but they are cash settled, meaning the actual cryptocurrency does not change hands.
But the new operations at ICE, which involves the transfer of the cryptocurrency instead of cash, would provide direct access to the digital asset by putting the actual Bitcoins in the customer’s account at the end of the trade. This allows market makers to effectively hedge their exposure across multiple exchanges. And as for security issues, there have been concerns that the cash-settled process can be manipulated too easily.