Thread by @jchervinsky

0/ @Bakkt plans to launch next month on December 12, and some people are hoping it kicks off another crypto bull run. Now seems like a good time for a quick discussion on:

- what Bakkt is
- why it might be exciting
- when it will get regulatory approval

Thread. 👇

1/ Bakkt is a brand new platform for institutions, merchants & consumers to trade, store & spend digital assets.

It was announced three months ago on August 3 in a detailed Fortune article that's still one of the best sources of information on it today:
fortune.com/longform/nyse-…

2/ Bakkt's goal is to make digital assets easier to buy, sell, store & spend.

Bakkt will start by offering one-day, physically-settled bitcoin futures contracts. That means if you buy a futures contract from Bakkt, you get actual bitcoin the next day.
medium.com/bakkt-blog/wha…

3/ One of Bakkt's most exciting features is the company behind it: the Intercontinental Exchange (ICE), the 2nd largest owner of financial exchanges in the world, including the NYSE.

ICE has also attracted big-name partners to the project, like Microsoft, Starbucks, and BCG.

4/ ICE entering crypto feels like a big deal. It's an established, respected & powerful player in the finance industry.

In other words, large institutions trust ICE with their money, including those institutional investors who many people think are key to the next bull run.

5/ Also noteworthy is the fact that Bakkt will custody & deliver real bitcoin.

That means institutional inflows would reduce supply & thus (maybe) increase price too. This is different from other regulated futures markets like CME & CBOE, which only deal in cash-settled futures.

6/ Bakkt will roll out in two phases. Phase one, set for December 12, is a futures contract where one contract = one bitcoin.

This isn't too useful for commercial transactions--nobody buys stuff in increments of one bitcoin--but it's perfectly fine for institutional investors.

7/ Phase two is a mystery. Bakkt hasn't said what it is or when it's coming.

Given all the talk about "spending" via Bakkt, I'm guessing it's some type of consumer-grade payment system. Maybe the kind you'd use at Starbucks to buy coffee with bitcoin. We'll have to wait and see.

8/ In the minds of many, Bakkt's launch has become a full-fledged narrative for when & how the bear market will end.

It plays the same role as bitcoin ETFs as a trusted vehicle to bring that sweet institutional money into the space, but without all the trouble of SEC approval.

9/ Hype aside, some people have lingering concerns about Bakkt.

The big question is if Bakkt will try to financialize bitcoin in a harmful way, such as through the use of hidden leverage. The leading voice on this issue is @CaitlinLong_, who you must already be following by now.

10/ In what seemed like a response to Caitlin's critiques, Bakkt's CEO, Kelly Loeffler, wrote a Medium post explaining that:

- all bitcoin trades on Bakkt will be fully prefunded, and
- Bakkt will not use any leverage, commingling, or rehypothecation
medium.com/bakkt-blog/new…

11/ Despite Bakkt's response, Caitlin sees open questions here.

Her point is that nothing can be taken for granted when Wall Street financializes scarce assets, so we need to see Bakkt's paperwork before drawing conclusions. The devil is in the details.

https://twitter.com/CaitlinLong_/status/1055104881592320000

12/ As for Bakkt's paperwork, what are we waiting for & when is it coming?

Since Bakkt plans to sell futures, it falls under the regulatory jurisdiction of the US Commodity Futures Trading Commission (CFTC). Selling futures without getting CFTC approval first is mostly illegal.

13/ But Bakkt falls under an exception to the rule requiring advance approval.

ICE is already a CFTC-registered "designated contract market," so it has the ability to "self-certify" a futures product for listing without prior CFTC approval. It just has to file its papers first.

14/ A designated contract market like ICE can file a self-certification submission as late as one business day before initial listing.

That means ICE technically doesn't have to file Bakkt's papers until Tuesday, December 11 for Bakkt to launch futures on Wednesday, December 12.

15/ But just because ICE can self-certify Bakkt's futures contracts doesn't mean Bakkt can totally ignore regulatory approval. The CFTC still has jurisdiction over self-certified financial products.

Bottom line: if the CFTC doesn't want a futures contract to trade, *it won't.*

16/ Consider the process that CME & CBOE went through to get approval for their bitcoin futures last year.

Both of them ended up self-certifying, but only after *months* of negotiations with the CFTC & changes to their products.

The CFTC explains here: (cftc.gov/PressRoom/Pres…)

17/ As for timing, CME & CBOE self-certified several days before launch.

Both of them filed their self-certifications on December 1, 2017. CBOE launched 9 days later on December 10. CME launched 17 days later on December 18.

Who knows if Bakkt will follow a similar timeline.

18/ Assuming Bakkt does go the self-certification route, its papers will go live on the CFTC's database here: (sirt.cftc.gov/sirt/sirt.aspx…). I'm guessing the CFTC will also put out a press release like the one they did for CME & CBOE.

All eyes on the CFTC website for news on Bakkt.