Bitcoin might become “digital gold,” but first it needs to be used more in everyday business, Intercontinental Exchange’s chief executive said.
During a quarterly earnings call Thursday, ICE head Jeffrey Sprecher said that he sees use in transactions as the prerequisite to bitcoin becoming a long-term store of value. The company’s Bakkt subsidiary, which runs a bitcoin futures market, announced this week that it is developing an app for consumers to buy goods from merchants, beginning with Starbucks.
A number of Bakkt’s employees already see bitcoin as digital gold, Sprecher said. (So, it should be noted, does much of the current bitcoin community.) To him, that’s premature.
“Because I’m old I think of [how] gold became a store of value because at one point it was a currency,” he said. “We had gold coins, it was in circulation, and over time because of the nature of its ability to spend, … it became a store of value and today, you know, in a crisis we all accept gold as a form of payment.”
Bitcoin may follow a similar trajectory, Sprecher said, citing its development and mining capabilities. He added:
“We don’t think that that that whole space will be relevant and and grow unless there are real use cases and we do … think that a use case is going to be the digital transfer of value through payments.”
But unlike bitcoin’s critics, Sprecher sees this as plausible. “It may well be that, rather than convert bitcoin to fiat currency and then use [that] fiat currency to buy goods and services, merchants and users will accept bitcoin directly,” he said.
Parties who do transact directly with bitcoin would avoid the foreign exchange costs associated with converting back and forth between fiat. Bakkt is looking to serve this market by building a digital platform to facilitate such transactions.
ICE (which also owns the New York Stock Exchange) has about 50 individuals working on payments infrastructure for Bakkt. The company is targeting an early 2020 launch date for its consumer app.
Sprecher also detailed the impetus for Bakkt to launch bitcoin options, which the company plans to do in December.
Financial institutions are still wary of entering the space, with many waiting to see how regulators approach crypto first, he said. Bakkt is hoping to tackle this issue by providing a more regulated environment in the bitcoin ecosystem.
“You know, retail global retail customers have been very comfortable for whatever reason being early adopters on unregulated platforms that call themselves exchanges, but really have no particular regulatory oversight,” he explained. “We think there’s an opportunity as what we’re building out with Bakkt to bring that whole thing into a more transparent regulatory footprint and lend our expertise.”
Bakkt went live with its flagship bitcoin futures last month after more than a year of working on regulatory approvals and building out its platform. While the company initially saw low volume for its bitcoin futures contracts, trading has recently picked up.
“It just so happens that the way we’ve launched our bitcoin futures contract is that we are a source of price discovery because we’re physically delivered,” Sprecher said, meaning the contracts are paid in bitcoin rather than dollars.
“We’re not dependent on the prices that come out of these unregulated cash markets,” he said, referring to the spot exchanges that dominate the market. “We develop our own settlement price and so that lends itself very nicely to an options market where people that trade options and hedge with the underlying can have perfect hedging in one venue that they know is transparent.
“So that was the pressure to get the options out quickly,” he said.