Microsoft and Starbucks-backed Crypto Ecosystem ‘Bakkt’ Could Accelerate Bitcoin ETF Approval

Newly announced Bakkt crypto ecosystem designed for consumer use and adoption can help accelerate a Bitcoin ETF approval. The platform was launched by Microsoft, Starbucks and NYSE owner ICE.

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Over the past one month, the U.S SEC has rejected ten Bitcoin ETF. Market experts, however, believe that the newly formed Bakkt exchange can help get the first Bitcoin ETF approved.

Bakkt was created with two guiding principles that address the two biggest issues holding back the SEC from approving a Bitcoin ETF:

  • Transparent and efficient price discovery:
    • SEC price manipulation concerns
    • SEC derivative market concerns (Bitcoin futures, margin/leveraged trading) 
  • A standardized regulatory framework
  • Complete trading, custody and wallet infrastructure

Bakkt is working on finding trusted price formation

In July, the SEC rejected the Winklevoss Bitcoin ETF for the second time, it recently delayed the VanEck SolidX Bitcoin ETF, and rejected nine Bitcoins ETFs by three different providers a few days ago.

Interestingly, the SEC decided to ‘recall’ the last nine rejected Bitcoin ETFs for review.

The commission released alongside the rejection letter a 92-page document where it explained that it isn’t satisfied with the dependence of the value of the ETF on public cryptocurrency exchanges.

The SEC was of the view that price manipulation affects even the regulated exchanges like Gemini and Coinbase, which operate in the US market with a proper license.

Thus, the commission noted that risks exist in basing the base value of a Bitcoin ETF on the price listed on the crypto exchanges.

The commission stated that:

In Section III.B, the Commission addresses BZX’s assertion that bitcoin and bitcoin markets, including the Gemini Exchange, are uniquely resistant to manipulation and finds that the record before the Commission does not support such a conclusion.

The SEC pointed out that the disapproval of the Winklevoss Bitcoin ETF does not mean that it is against cryptocurrencies or blockchain technology.

The rejection was due to the absence of a trusted price formation which would likely leave the ETF and the global Bitcoin market open to price manipulation

The commission added that the rejection decision does not rely on an evaluation of whether Bitcoin or blockchain technology more generally, has utility or value as an innovation or an investment

The rejection of the Winklevoss ETF has to do with the commission worried about the Bitcoin ETFs reliance on Gemini crypto exchange, something the commission doesn’t approve of.

Bakkt looking to address those issues

Bakkt, a company that was recently launched to bring cryptocurrencies to the mainstream is looking to solve the issues SEC has been complaining about. The firm was created by Microsoft, Starbucks, and the New York Stock Exchange (NYSE).

Bakkt has stated that it is currently working on building a consistent regulatory construct; transparent, efficient price discovery; and an institutional quality pre- and post-trade infrastructure.

Bakkt, which has been designed to target the institutional investors in the US market. further revealed that its exchange will not allow Bitcoin to be traded on margin or leverage. This is the reason why some of the recently rejected ETFs by ProShares and Direxion were denied.

The company stated that with their solution, the buying and selling of Bitcoin are fully collateralized or pre-funded. Bakkt added that their new daily Bitcoin contract will not be traded on margin, use leverage, or serve to create a paper claim on a real asset

SEC explained over the past few weeks that a lack of trusted price formation and reliance on futures markets and derivatives were the reasons why it rejected the ten Bitcoin ETFs recently.

Bakkt exchange has already satisfied the two requirements set by the SEC. If the exchange continues to work on finding a trusted price formation, then the possibility is high that it could affect the approval of the first bitcoin ETF.

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