Most young investors are interested in cryptocurrencies. To put this into perspective, owning Bitcoin in December 2017 was judged "cool". Furthermore, this asset class is still popular among the younger population despite its poor performance from the start of the year.
However, these crypto-investors are caught in a situation from which they can not extricate themselves. However, a considerable part hopes that the approval of Bitcoin ETFs will launch another bull market. On the research, another corner of this argument emerges; BAKKT. BAKKT supporters believe they are a much better alternative to Bitcoin ETFs.
Below is a detailed description of both, including their differences.
The promise of BAKKT and Bitcoin ETF
In recent months, investors are eagerly awaiting the SEC decision on Bitcoin ETFs. Although the regulator rejected nine applications in August, many are confident that the authority will eventually approve the ETFs. According to the SEC, the reasons for the rejection were the uncertainty of the blockchain investment models facing the questions.
While most of the crypto community is excited by Bitcoin's ETF, another digital asset platform called BAKKT was introduced by ICE, a major security trading operator. ICE oversees many cryptographic trading platforms around the world and has worked with Starbucks, BCG and Microsoft to develop and launch a globally regulated ecosystem for digital ecosystems.
What is the Bitcoin ETF?
An Exchange Traded Fund (ETF) is a tradable security that tracks equity indices, commodities, bonds or assets. In this case, Bitcoin ETFs trace the digital currency. Essentially, ETFs take an asset into custody and issue shares that represent ownership of the underlying assets. This means that shareholders can own a part or a whole of an asset without physically holding the business.
Bitcoin ETFs allow investors to hold Bitcoins without necessarily carrying out operations of mining or trading on digital exchange platforms. Therefore, they are ideal for people who are interested in exchanging Bitcoins but lack the knowledge on how to extract or exchange encrypted. There are two variants of Bitcoin ETFs, those that keep the Bitcoin physically and others that buy Bitcoin derivatives. Both trace and emulate the performance of the Bitcoin benchmark index.
Disadvantages of Bitcoin ETFs
The most significant disadvantage of Bitcoin ETFs is that they can easily be distorted. Typically, ETFs are required to benchmark their positions on an index, as well as to disclose their daily holdings. As a result, investors who negotiate before reconciliation can manipulate prices. This causes significant price changes, creating the problem that Bitcoin has been developed to eliminate.
Furthermore, the use of Bitcoin ETFs contradicts the concept of decentralization, one of the key features of Bitcoin. This is because the manager of the ETF holds the Bitcoin on behalf of individual investors. The manager is responsible for making decisions regarding Bitcoin. Because ETFs hold significant amounts of Bitcoin, they are likely to have a significant impact on the results of the voting processes on the Bitcoin network. This undermines decentralization on the blockchain.
Finally, ETFs will be highly monitored by government regulatory authorities. ETFs will be classified as securities, which means that they would be required to disclose user information to obtain approval. This will affect the transparency of Bitcoin transactions.
The advantages of BAKKT
BAKKT is a complete ecosystem for digital resources. As of now, its most popular application is its partnership with Starbucks. The BAKKT platform will allow users to buy, sell and hold virtual currencies in an efficient and secure environment. In addition, BAKKT will offer one-day Bitcoin futures contracts that will be physically resolved to mitigate the risks associated with Bitcoin trading.
Kelly Loeffler, CEO of BAKKT, said the platform will mainly be used to exchange and convert Bitcoin into the three major legal currencies, namely the US dollar, the British pound and the euro. This is intended to allow users to enjoy the benefits of cryptocurrencies using their current financial resources.
In August, BAKKT announced that it was awaiting approval from the CFTC for the initiation of physically resolved Bitcoin futures contracts. Theoretically, this feature would allow users to purchase Bitcoin and expect a fiat currency delivery the next day. This will contribute to regulatory compliance and improve transparency and efficient price identification.
Finally, BAKKT requires that all investments be fully guaranteed; the commercial margin is not supported. BAKKT also offers a secure repository for cryptographic resources so that external parties can trust the platform.
What is the best? Bitcoin ETF or BAKKT?
BAKKT has the upper hand over ETFs mainly because it is profitable and complies with crypto regulations. In addition, Bakkt is backed by real resources, a factor that reduces the risk of volatility associated with virtual currencies.
Furthermore, the BAKKT ecosystem offers a solution to the challenges inherent in Bitcoin ETFs. In BAKKT, investors can directly access their Bitcoins and participate in the voting processes. Moreover, all digital resources are stored in a single position, reducing the possibilities for manipulation. Above all, BAKKT comes with a myriad of features that are not available to Bitcoin ETF users.