NYSE owner ICE-backed Bakkt could launch its crypto trading and custody platform during the third quarter of 2019, according to a report in online publication The Block. The platform is still awaiting clearance from the NY Department of Financial Services. The approval will enable it to open the doors on the Bakkt Warehouse, a limited-purpose trust firm that will be a custodian for physical bitcoin delivered to clients. The company plan to provide a regulated infrastructure for traders to send and receive bitcoin in US dollars in regulated settlement cycles. Bakkt has self-certified its contracts to comply with CFTC regulations.
A Problematic Guaranty Fund?
The Block report quotes some people as saying that Bakkt is assuming too much risk in planning to launch early. For example, the exchange has created a guaranty fund that is “too tiny” to cover positions at risk. Guaranty funds are part of regulatory requirements to ensure that investors are made whole if insurers fail to pay. Ricky Li, co-founder of Altonomy, a trading firm, said Bakkt’s plan to cover $400 million worth of open funds with a $35 million guaranty fund was “not normal practice in the clearing risk management system.” But the same report also quotes a crypto hedge fund based in New Jersey as saying that Bakkt’s guaranty funds were not cause for alarm.
He added that the plan was still solid and would attract major traders like their hedge fund. It is also worth noting that Bakkt is quite transparent unlike many other exchanges in the crypto world. These exchanges offer little to no information about their consumer protection policy.