Nick’s Note: Last week, one of the biggest players in global finance got behind bitcoin. World-renowned cryptocurrency expert and former hedge fund manager Teeka Tiwari believes it’s one of the biggest stories of the year… But the market hasn’t reacted to the news—yet.
Below, Teeka tells me what this new development means for bitcoin and the cryptocurrency space… and why the market’s delayed reaction is good news for crypto investors…
By Nick Rokke, analyst, The Palm Beach Daily
Nick: T, we just got some big news about a project involving bitcoin. Can you enlighten us?
Teeka: Last Friday, the Intercontinental Exchange (ICE) announced it’s working with Microsoft to create a new platform for cryptocurrencies.
Everyone knows Microsoft is a major technology player. But most people don’t know that ICE owns the New York Stock Exchange and is a major player in global finance.
It also runs 23 other exchanges around the world, including exchanges in Chicago, San Francisco, London, and Singapore.
ICE is one of the most respected companies in the world… And it’s responsible for the smooth operation of dozens of major global financial markets.
Now, ICE has developed a platform that will allow institutions to buy bitcoin. It plans to launch the exchange in November if it gets approval from regulators.
I can’t tell you how incredibly bullish this is for bitcoin…
Nick: What’s the name of the project?
Teeka: It’s called Bakkt (pronounced “backed”). ICE chose that name because the platform will issue futures contracts backed by bitcoin.
That means institutions can buy bitcoin contracts and settle them with actual bitcoin.
This is different from the Chicago Board Options Exchange (CBOE) bitcoin futures contracts issued in December 2017.
The CBOE contracts settle in cash. No bitcoins actually exchange hands.
The ICE contracts will create even more demand in the bitcoin market because they settle in actual bitcoin… That should push prices up even further.
Nick: That’s exciting. But I have a concern… If I bought this contract, how would I know I would get the bitcoin when it settles?
Teeka: The same way you would know you’ll receive a stock when you buy it. Or the same way a large oil refinery knows it will receive a barrel of oil when it buys one.
ICE is a clearinghouse. Clearinghouses are an important part of financial markets. They guarantee the transaction happens for both parties.
When you buy a stock, a clearinghouse guarantees you’ll receive your stock. And if you sell a stock, it guarantees you’ll receive the cash.
Normally, this process goes off without a hitch…
But let’s say someone buys your stock and doesn’t have the funds to pay for it. It’s now ICE’s problem. ICE will give you the cash and go after the other person for the money.
It will do the same thing for bitcoin.
If you want to sell a bitcoin contract on the Bakkt exchange, you’ll have to deliver your bitcoin. Bakkt will take custody of the bitcoin and hold it in a safe place.
When the contract settles, Bakkt will deliver that bitcoin to the buyer’s account.
Nick: It sounds like ICE has solved the bitcoin custody problem…
Teeka: That barrier for buying bitcoin will be gone in November.
We’ve been talking about the custodial issues for a while. That’s because you and I are former hedge fund guys.
We know that hedge funds and pension funds can’t buy securities if there are custodial problems. Custodians ensure that securities are safely held. They reduce the risk of theft or loss.
Starting in November, institutions will have one of the world’s most trusted third parties guaranteeing the safety of their bitcoins.
That’ll drive a ton of new demand for bitcoin… and that demand is going to come into the actual bitcoin market.
Nick: I also hear that the Bakkt project will make it easier to spend bitcoin. Any thoughts on that?
Teeka: Along with Microsoft, Starbucks is a major partner of the Bakkt project.
Starbucks wants to expand the digital options people use to buy its coffee.
Millions of people go to Starbucks every day… And if they have Bakkt accounts, they’ll be able to buy coffee with bitcoins using their smartphones.
It’ll be as easy as using Apple Pay. And that’ll open bitcoin to millions of new users.
Merchants like Starbucks are going to love this service… As soon as the transaction happens, Bakkt will convert the bitcoin to dollars for Starbucks.
That means Starbucks won’t have any exchange risk. Starbucks isn’t in the business of owning bitcoin… and it doesn’t want to be.
Bakkt fees will be lower than credit card fees. That’s one reason why Starbucks will want to use this system.
This is like the birth of the modern credit card. I truly believe Bakkt is that important for cryptos.
I’ve always said that ease of use will drive the value of cryptocurrencies higher. Bakkt will make bitcoin much easier to use.
Nick: Do you think this will also drive the value of other cryptocurrencies higher?
Teeka: What’s good for bitcoin is good for the entire market. The pattern is the same… People get their feet wet with bitcoin, then venture into the smaller coins. As more people buy bitcoin, it naturally lifts the entire cryptocurrency market.
Nick: Why is the market ignoring this news?
Teeka: Crypto is an immature market made up of young participants. Many have no idea what “custody” is or how important ICE is. That is why the market has overlooked this so far.
I saw the same thing happen in July 2017, when the Commodity Futures Trading Commission (CFTC) announced bitcoin futures trading. The market yawned and then dropped 30%! I was pounding the table to buy bitcoin, saying it would hit $10,000. By December, it was at almost $20,000.
So this delayed reaction is a gift for all of us to go and buy some bitcoin before this new demand hits the market.
I still have a $40,000 end-of-year price target on bitcoin. That implies a 600%-plus gain from today’s prices.
Remember, cryptocurrencies are a volatile asset. That’s why I recommend keeping your position sizes small, so you can weather any volatility the market gives us.
Nick: Thanks for your time, T.
Teeka: You’re welcome.