Week In Review

Bitcoin Trades Under $7,000 Despite “The Biggest Bitcoin News Of The Year”

The markets’ nosedive this week is a sharp contrast from the consequential news we received.

Intercontinental Exchange (ICE), the operator of 23 leading global exchanges including the New York Stock Exchange (NYSE), shared plans to create an ecosystem for digital assets globally.

This would cover everything from federally regulated markets and warehousing to consumer and merchant needs.

Their platform, Bakkt (pronounced like “backed”), has been developed in partnership with a variety of huge names including Microsoft, Starbucks, and BCG. They will begin by offering Bitcoin-fiat conversion for consumers to purchase everyday goods with cryptocurrency.

“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into US dollars for use at Starbucks,” said Maria Smith, Vice President, Partnerships, and Payments for Starbucks. “As a leader in Mobile Pay to our more than 15 million Starbucks Rewards members, Starbucks is committed to innovation for expanding payment options for our customers.”

In addition to providing a digital asset ecosystem, Bakkt will integrate with the ICE’s U.S. futures market and clearinghouse. They will list a physically-settled one-day Bitcoin futures product, which will include physical warehousing (storage) managed in-house.

They plan to launch their futures product in November, pending regulatory approval.

Bakkt, which also plans to launch in November, prompted CNBC’s Brian Kelly to suggest that this is “the biggest Bitcoin news of the year.”

In many ways, this news is considerably bigger than a Bitcoin ETF approval.

Why? What does this platform mean for us?

For one, the biggest issue for mass crypto adoption, custody of assets, has been solved to the SEC’s apparent satisfaction. I say apparent as we don’t know how they feel about this until we see it affect the upcoming ETF decisions. It stands to reason that ICE wouldn’t have made a press release without making sure that this helps their cause and crypto’s cause with the SEC.

You can expect whatever this model is to be copied and implemented on other exchanges worldwide.

Furthermore, custody of assets being solved in this way means we will soon see people adding Bitcoin to their 401k if they desire.

Finally, it’s too early to speculate with certainty, but the regulatory issues for ETFs might also have reached a point where custody of assets is enough to convince the SEC that the market is ready. Obviously, their issues with manipulation and price volatility have not gone away, so this point may be moot for the time being, but there is a growing chorus they cannot ignore.

This comes after comments made this week by dissenting SEC Commissioner Hester Peirce, who voted for the recently rejected Winklevoss Bitcoin ETF filing:

“One, I disagree with how they read our statutory mandate. The way I read our mandate, we should have approved this one because we really shouldn’t have been looking to the underlying markets the way that we did in the order that they put out last week.

Second issue, I do think that institutionalization in this space would address some of the concerns they lay out in their order.

And the third thing, I think that, historically, the SEC has not been great on innovation, on welcoming innovation, and for me, this order perpetuated my concerns in this regard. We need to have a willingness to welcome new approaches and I’m worried that if we keep sending the message that we’re not open to hearing from people who have new ways of doing things, then people will say we’re going to take our business to another country.”

While ICE believes it can be the one to take Bitcoin mainstream, it also says it will not resemble the crypto-anarchist vision harbored by many early cryptocurrency adopters.

“Bitcoin can’t survive as a rogue idea,” said Jeffrey C. Sprecher, founder, chairman, and CEO of Intercontinental Exchange. “To evolve, the cryptocurrencies need to run on established infrastructure. They need the trust and rules that have been built into our financial system for many years. They need the kind of trust that the Big Board represents.”

That may seem ominous for those who value freedom for cryptoassets over price and adoption, but it cannot be argued that this will open up cryptocurrency to the world like nothing before.

Sprecher continued, “Bitcoin has the potential to become the first worldwide currency and we’re trying to make that happen.”

As an ironic signal of what’s happening, Jaime Dimon, CEO of JPMorgan Chase, the largest of America’s Big Four banks, who in September called Bitcoin a “fraud”, has a very different opinion of blockchain today. In the July-August issue of the Harvard Business Review, he called blockchain technology “real,” saying that JPMorgan is “testing it [blockchain] and will use it for a whole lot of things.”

This comes after the recent news that Google will be offer ready-made templates for their ‘blockchain as a service’ offerings, similar to products offered by Amazon Web Services, Microsoft Azure, and cloud-hosting services offered by Oracle.

Despite what the market prices may be telling you, the institutional players and the corporations have a very different tale.

The market seemingly reacted more to the news that the Korean exchange Upbit was raided by South Korean authorities than all these positive developments. Upbit was later found to be innocent of any wrongdoing, so the market’s current state is oversold based on nothing other than empty fear.

We simply can’t see the market continuing to languish like this under these circumstances. It’s clear that we’re reaching a point of hysteria with regard to fear, and that can easily predicate a sense of euphoria should the pendulum swing the other way.

Crypto continues to get more and more interesting, and the market continues to give us more hope of seeing a rebound here.

2018 is not over yet.

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Defensive Actions for the next trading day: 

• None.