Bitcoin Venture Backed By NYSE Owner Faces Fresh Delay, Executes Plan “B” (#GotBitcoin?)
Bakkt’s pursuit of trust status in New York state complicates its path to launch. Bitcoin Venture Backed By NYSE Owner Faces Fresh Delay, Executes Plan “B” (#GotBitcoin?)
A plan by the owner of the New York Stock Exchange to make it easier for consumers to pay for purchases in bitcoin faces further delays after the venture, called Bakkt, said it was applying for a license from New York state regulators.
Bakkt said in a blog post on Monday that it has filed with the New York Department of Financial Services for approval to become a trust company.
That status would let Bakkt hold bitcoin and other cryptocurrencies on customers’ behalf while abiding by regulations aimed at ensuring investors’ assets are kept safe.
But it also means the launch of Bakkt, which was originally planned five months ago, is likely to be further held up. Other crypto companies that have applied to be trust companies in New York have found the process takes half a year or more.
Bakkt is being spearheaded by Atlanta-based Intercontinental Exchange Inc., which is best known for owning the NYSE.
ICE said last August that it aimed to launch the first building block of the Bakkt platform—a bitcoin futures contract—in November 2018. Futures are financial tools that firms can use to protect themselves against swings in prices—in this case, against changes in the bitcoin-dollar exchange rate. With a bitcoin futures contract, ICE is seeking to make it easier to convert between bitcoins and dollars and ultimately simplify the process of making retail purchases in cryptocurrencies.
ICE has partnered with corporations including Microsoft Corp. and Starbucks Corp. on the Bakkt initiative, according to the companies.
The Commodity Futures Trading Commission, which regulates futures markets, so far has refused to sign off on ICE’s bitcoin contract. ICE’s efforts to win CFTC approval were snarled because of the agency’s concerns over storage of bitcoin, and one option that regulators gave ICE was to register Bakkt as a trust company, The Wall Street Journal reported in March.
An ICE spokesman declined to comment beyond Bakkt’s blog post. The New York Department of Financial Services and CFTC declined to comment.
Unlike rival exchanges that have launched their own bitcoin futures, ICE is seeking to make its contract physically delivered. That means that firms trading ICE’s futures would settle gains or losses by accepting bitcoins or delivering them to Bakkt’s “warehouse”—essentially, a secure digital vault for the storage of crypto-assets.
Such a design could help ensure a tight link between ICE’s futures and the underlying market for bitcoin. But it also raises novel regulatory issues, since the CFTC has yet to approve a physically delivered bitcoin-futures contract.
Last October, San Francisco-based Coinbase Inc. won a similar trust-company license from the New York Department of Financial Services. The process of getting that approval took Coinbase about half a year, according to a person familiar with the application process.
Gemini, the cryptocurrency exchange founded by twin-brother entrepreneurs Cameron and Tyler Winklevoss, took 18 months to get its New York state trust license, a person familiar with the situation said.
Bakkt Acquires Crypto Custodian, Partners With BNY Mellon On Key Storage (Plan “B”)
Pending bitcoin futures exchange Bakkt has acquired the Digital Asset Custody Company (DACC), secured insurance for assets it will hold in cold storage and revealed a partnership with BNY Mellon.
Adam White, the former Coinbase executive turned Bakkt COO, wrote in a blog post Monday that it acquired DACC to continue developing a secure digital asset storage solution. DACC’s team “share [Bakkt’s] security-first mindset,” he wrote, while also bringing experience in building its own secure and scalable custody solutions.
White hinted that the acquisition may also help Bakkt add cryptocurrencies beyond bitcoin sometime after launch, writing:
“As we look to scale and support custody of additional digital assets, DACC’s native support of 13 blockchains and 100+ assets will serve as an important accelerator, and we’re pleased to welcome Matthew Johnson, Adam Healy, and the entire DACC team to Bakkt.”
Bakkt did not reveal how much it spent to acquire the custodian.
To further aid its storage solutions, Bakkt has been working with global bank BNY Mellon to set up “geographically-distributed” private key storage, White wrote.
BNY Mellon has a long history of storing institutional clients’ assets, including hedge funds, asset managers and broker-dealers, he said.
The exchange has also secured insurance for funds stored offline.
“Bakkt uses both warm (online) and cold (offline) wallet architecture to secure customer funds. The majority of assets are stored offline in air-gapped cold wallets that are insured with a $100,000,000 policy underwritten by leading global insurance carriers,” he wrote, though he did not identify who these carriers were.
White also confirmed Monday that Bakkt was seeking a qualified custodian license through the New York Department of Financial Services. If granted, the exchange would be able to provide a regulated custodian for any crypto assets that it holds, which may ease its launch of physical bitcoin future contract.
As previously reported, Bakkt’s original plan to custody bitcoin itself and settle contracts through its parent firm’s warehouse, ICE Clear US, may fall into a regulatory gray area. Its launch has been indefinitely delayed pending approval by the U.S. Commodity Futures Trading Commission.
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