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Cryptocurrency Derivatives Series: Why Bakkt’s Custodian Service Amid Its Crypto-Derivatives Launches?

Bakkt has officially made an announcement about the launch of its institutional custody business. Wherein, the company revealed that the Bakkt Warehouse, which until now stored the bitcoin tied to its futures product, would open its doors to clients intending to "safeguard their assets using Bakkt's enterprise-grade offering."

Bakkt's objective of custody services has universally been known long while ago, however, the approval from the New York Department of Financial Services (NYDFS) has stimulated the motives and enables the firm’s intention to officially launch the business. 

The reason as to why Bakkt rolled out custodian service soon after BTC Futures launch, when they have plans of launching cash-settled BTC futures and bitcoin options, is explained below: 

We all have seen US SEC constantly declining various proposals of Bitcoin ETFs, the US regulatory watchdog has pointed out couple of potential threats that hinders the prospects of bitcoin ETFS and crypto-derivatives. The predominant hindrances according to them are price manipulation, custody, trading hours and data sharing with regulators.

One should understand as to how an ETF or any other crypto derivatives obliges and stores the underlying asset ‘which is Bitcoin’ is another significant consideration for the regulators and the provider of the ETF & other derivatives products. With the irrecoverable nature of any Bitcoin that is misplaced or stolen, it is extremely important that it is managed and stored in a highly secure manner. 

Usually, assets held by an ETF or a derivatives products are managed by a third party custodian and clearing houses, but until recently this infrastructure has not been available for Bitcoin or other digital assets. Fortunately, these services have ​now been built out and there are a few different options for institutional-grade custodianship, such as BitGo, Fidelity Digital Assets, Bakkt, and Gemini. 

ICE’s Bakkt is striking the chord in the cryptocurrency industry time and again. We already reported that they are geared-up with the all-time high volumes in the recent past. 

It has been a gala time for Bakkt as they are again in the limelight for now with their cryptocurrency trading momentum and with the official announcement of unveiling custodian services to the institutional clients.

In the initial phase, choosing the Bakkt Warehouse as their preferred digital asset custodian are ‘Pantera Capital’, ‘Galaxy Digital’, and ‘Tagomi’. Bakkt would gradually be onboarding additional marquee firms to their custody offering in the weeks to come.

By Niranjan Patil
  • Market Data
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