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Tuesday, September 25, 2018

We've just learned the first product the NYSE, Microsoft, and Starbucks crypto venture Bakkt will offer...

Early last month I covered the announcement of the new cryptocurrency venture called "Bakkt", a company launched by the New York Stock Exchange, Microsoft, and Starbucks.

Today, we're learning about the first product they will offer - Bitcoin futures, with a twist.  The company tweeted:

"Our first contracts will be physically delivered Bitcoin futures contracts versus fiat currencies, including USD, GBP and EUR. For example, buying one USD/BTC futures contract will result in daily delivery of one Bitcoin into the customer’s account."

To understand why they would be physically delivering something that represents a virtual asset such as Bitcoin, you need to understand the very complex legal framework of 'custody'.  The issue is something that's held Wall Street back from offering cryptocurrency investments, until a solution that meets legal compliance is created.

I explained it this way last week covering a company that believes they have a custody solution.

"When it comes to traditional markets, very few investors actually sit upon stacks of stock certificates to prove what they own - and they don't want to. Their brokerage firm does all that, and will want them to do the same for their crypto assets.

So, the 30 second version is: there's laws surrounding the storage of any valuable assets.  How to do this in a way that would allow major Wall Street investment houses to offer cryptocurrencies to their clients, while at the same time meeting all the legal requirements surrounding custody, has been a massive challenge."

Basically - for now Bakkt has has decided to use a method where none of this is a concern.  Waiving any need for custody compliance by creating a physical asset that represents Bitcoin, and then delivering it daily to their customers - so the entire issue of custody is in the hands of the client.

A creative solution, for now. But the race is on to develop an SEC approved method of custody for cryptocurrency assets, and once this exists I expect Bakkt's daily delivery method to be replaced.

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Author: Ross Davis
E-Mail: Ross@GlobalCryptoPress.com Twitter:@RossFM
San Francisco News Desk