Bakkt launches agency-level hosting business: market saturation? nonexistent

Original: at The Block & Bakkt official blog , the original author: Frank Chaparro

Source: Odaily Planet Daily

Translator: Nian Yinsi Tang

Bakkt, backed by the Intercontinental Exchange (ICE), announced on Monday that it will launch its institutional-level hosting business.

The company said in a blog post that Bakkt Warehouse will open its doors to customers who want to "protect their assets with Bakkt's enterprise-class services." Prior to this, Bakkt Warehouse had stored Bitcoin bundled with its futures products. Bakkt's ambitions in hosting have long been available, and the approval of the New York Financial Services Department (NYDFS) will allow the company to officially launch the business.

In August, The Block reported that Bakkt "will soon open its doors to hedge funds, asset management companies and other customers." This time, Galaxy Digital, Tagomi and Pantera Capital will be the first to become Bakkt's new hosting services.

Destined to be a hard battle

According to the Financial Times, Bakkt Warehouse is entering a highly competitive market, with competitors including Fidelity Digital Assets, which has launched its own platform in October. In addition to this, Coinbase Hosted, which manages more than $7 billion in assets, in part because it acquired Xapo's institutional business. Coinbase hosting was launched in 2018.

In fact, Fidelity was also considering the acquisition of Xapo. This suggests that competition is further exacerbating in a segment that most people consider to be the most saturated segment of the digital asset market. BitGo, which competes with Coinbase in multiple accounts, is the oldest company on the market. According to sources, Goldman Sachs is its supporter, and BitGo once worked with Goldman Sachs on proof-of-concept work.

At the same time, new players who are committed to launching more "sexy" technology products are trying to capture market share from their more famous competitors. For example, the encrypted hosting platform Anchorage hopes to take advantage of the so-called “smart storage” technology to adopt an “old-fashioned” cold storage solution for hosting through a novel product.

The intensification of competition has led to the collapse of costs. According to the Coinbase website, the company charges more than 100 basis points for hosted cryptocurrencies, but now only charges 50 basis points. A spokesperson for Bakkt did not respond to the inquiry fee.

Cost compression forces companies to look for advantages. BitGo is exploring a prime brokerage solution for its customers, while Gemini wants to enhance its billing capabilities for institutional clients.

What is the Bakkt hosting service?

Each custodian's encrypted storage solution is unique. As for Bakkt, it claims to provide a $125 million policy that is underwritten by an undisclosed entity. BitGo claims to have the "most comprehensive hosting solution" with a $100 million insurance package. The concept of insurance is very doorway, not all packages are created on an equal basis – this has nothing to do with the size of the package.

According to the official blog of Bakkt, the hosting service has the following "features":

Enterprise infrastructure

  • Dedicated network connectivity between local data centers and operations eliminates reliance on multi-tenant systems, hosting facilities, and third-party data centers;
  • We use biometric-controlled bank-level vaults and enterprise-grade FIPS 140-2 Level 3 Hardware Security Modules (HSMs) to ensure the security and availability of client funds;
  • The geographically distributed primary and secondary facilities provide redundant systems that support all production workloads and disaster recovery.

Operational control

  • We protect our operations through 24×7 video surveillance, armed guards, security operations and incident response teams;
  • All signature operations are geographically distributed and require multiple entities in multiple locations to fully sign the transaction;
  • We perform separation of duties, protection of identity and independent reporting structures to provide internal threats and anti-collusion controls;
  • Independently audited Business Continuity and Disaster Recovery ensures that client funds are safely kept in natural disasters or emergencies.

Independent supervision

  • Bakkt Trust Company is a limited-purpose trust company regulated by the New York Financial Services Department with an independent board of directors, including an audit and review board;
  • We have a $125 million policy and are covered by the world's leading insurance groups;
  • We have regular third-party audits, including SOC 2 Type II certification, formal enterprise risk management programs, and internal management change approval processes.

Bakkt action frequently

Despite the unremarkable response at the time of its launch, the recent Bakkt seems to be gradually showing its true strength.

According to previous news, Bakkt's monthly physical settlement bitcoin futures just recorded the largest single-day trading volume. Last Friday, the volume reached approximately $15.33 million, exceeding the all-time high of $10.25 million set on October 25. Since its launch on September 23, Bakkt's total monthly Bitcoin futures trading is currently $106.74 million (12012 Bitcoin).

Bakkt also recently announced plans to launch a cryptocurrency consumer app and merchant portal in cooperation with its first partner, Starbucks, in the first half of 2020. At the October earnings conference call, Intercontinental Exchange CEO Jeffrey Sprecher announced that all types of financial institutions are negotiating with Bakkt to explore the possibility of adopting their products. ICE is the main supporter of Bakkt.

In addition, Bakkt launched a liquidity incentive program on November 1st, which may have driven its recent volume growth. An exchange industry veteran pointed out: "The surge in Bakkt's trading volume coincides with the transaction volume payment."