For the hopefuls that have backed Bitcoin and other cryptocurrencies by investing online in the digital currencies, 2018 hasn’t, so far, been a great year. While Bitcoin’s value and the wider cryptocurrency market has managed to hold on to a good portion of the gains that resulted from last year’s bull run, values have also dropped to less than half of their peak around the turn of the year.
As such, a recent announcement that the InterContinental Exchange, owner of the NYSE and over 20 other major international exchanges, is establishing a new company whose aim is to provide a federally regulated market for Bitcoin, will come as a major boost. The company, named Bakkt, is also partnering with an impressive roster of other investors including Microsoft, Boston Consulting Group, and Starbucks.
If Bitcoin and other cryptocurrencies are to realise their potential by breaking through into mainstream finance, most observers believe that some kind of regulation will be inevitable. Without that the digital currencies seem fated to remain a counter-culture phenomenon. If cryptocurrencies are to provide an alternative to traditional fiat currencies, addressing the wealth erosion impact on savings of inflation, contributing towards a more egalitarian global financial system and offer efficiencies in the digital age, they need to be a widely accepted medium of exchange – practically spendable on everyday goods and services.
Bakkt’s ambition is to help shape Bitcoin into an asset that financial institutions are comfortable with, clearing the way for Bitcoin-based funds, ETFs and other regulated investment vehicles. The logical conclusion of that trajectory would be the possibility for Bitcoin-backed debit and credit cards.
Speaking at the announcement of the venture, InterContinental Exchange’s director of digital assets Kelly Loeffler, who will be Bakkt’s acting CEO, stated:
“We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”
A core assumption of the new company’s strategy is that the trading liquidity that financial institutions would bring to the Bitcoin and other cryptocurrency markets would iron out the high levels of volatility that restrict the potential of cryptocurrencies being practically used as workable currencies. The project has an as yet undefined ‘second phase’. The presence of Microsoft and Starbucks, both heavily involved in the digitalisation of retail (Microsoft through its Azure cloud business), suggests that may involve Bitcoin being popularised as an everyday currency.
ICE’s plans would be expected to result in deep debate with the Bitcoin community. Cryptocurrency purists would be expected to oppose an exchange-based system, with the ‘distributed’ p2p quality held dear by many. The more practical elements of the community largely accept that some level of regulation is a practical necessity to growth. Speculative investors in cryptocurrencies would be expected to support the move as mainstream use of Bitcoin would be expected to significantly drive its value.