In an exclusive interview for Cryptonews CEO Bakkt Holdings, Gavin Micheal denounces the damage caused by FTX, saying it is now up to the industry to restore trust. He believes that the highly regulated Bakkt will be one of the winners of the crypto winter.
Bakkt is among the few publicly traded crypto companies in the United States and Michael has served as CEO and Chairman since January 2021.
Bakkt, owned by the Intercontinental Exchange, may have an unrivaled pedigree among crypto companies: ICE also owns the New York Stock Exchange.
It is this provenance that holds Bakkt in very high regard amid the collapse of FTX and the continued revelations of the lack of controls and core systems in place in the operation of the now-collapsed crypto exchange.
In fact, indirectly, Bakkt could be seen as a beneficiary of FTX's failure, as it meant that steps taken by FTX's Sam Bankman-Fried to disrupt the way futures trading is done, which threatened the role of intermediaries like ICE, are now dead in the water.
However, Bakkt has not escaped the impact of falling crypto stock valuations.
According to Bloomberg, ICE reduced the value of its stake in Bakkt from €1,500 billion to €400 million. Bakkt shares are down more than 80% year to date.
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Bakkt will be one of the survivors of cryptocurrencies
Bakkt's mission is to connect the digital economy, and in pursuit of this goal, it announced in early November its intention to acquire Apex Crypto for €200 million in cash and stock.
The acquisition is not expected to be completed until 2023, but this example of industry consolidation suggests that Bakkt is most likely one of the survivors of Crypto Winter, not one of its victims.
With its custody, payment and loyalty program services, Bakkt is something of a pioneer in the field. And combined with its focus on strict regulatory compliance, it appears that the company is well positioned for the recovery.
Furthermore, the acquisition of Apex Crypto, which specializes in implementing cryptosystems for fintechs and other financial institutions, seems like a smart move by Bakkt, even if, in the short term, implementing crypto features may not be a priority for many fintechs. after FTX.
Unsurprisingly, Michael believes that there is a future for cryptocurrencies and that the underlying technology supply is strong, even if some market players are not.
The key to the future is building trust, says Michael in the interview below.
What will the US regulation and perhaps the global environment look like after FTX?
Excellent question. Listen, I think there's no question that everything we're seeing highlights the need for better oversight of retail-focused platforms.
So we look at things like controls, policies, procedures around client funds that lead to changes.
And part of that involves more transparency, so we know what a company is doing with the funds it receives! I think we're going to see that evolution now, and I think it's something we can all agree on.
A future where we see a lot of regulation is good for the market and good for consumers.
I think regulatory clarity is what the market is looking for in terms of broader adoption of crypto infrastructure.
So I think that serves as a catalyst to stimulate that, and that's a very good thing.
As you may know, Bakkt was founded by the Intercontinental Exchange, so from the beginning our approach has been more mature, where we prioritized regulation and compliance.
I think when we look at one of the things that need to change is to make sure that from a regulatory perspective, we look at the development of a regulatory framework. And it doesn't matter if there are several agencies or not. But we have to make sure that we understand the role of each of the agencies in surveillance.
And, when I think about here in the United States, that means making sure there's an understanding of how disclosures work, how we operate in an environment where we can see the right level of trust and transparency, so that we have fair market discovery. price transparency and ensuring clarity.
We also want to be able to see the proper separation of roles and functions. For example, we are a regulated custodian that is managed as a trust. This is separated from areas like business executions so we don't have any conflicts of interest between these functions.
We treat our clients' funds as their own funds. There are no loans or leverage or anything else.
We don't do things like deal with corporate investments through trust funds. We have legal walls between our different businesses – it's that level of transparency that will be critical to the industry as a whole as we move forward.
We built our business with firmly established guiding principles of rigorous risk management, controls and compliance measures. We want to make sure that we see that end-to-end regulatory clarity is presented.
Do you see where we are now, a tipping point on the same level perhaps as the dotcom bubble burst in 2000? So there will be the strong ones that survive and hopefully that will take out the weaker players and bad actors.
I think it's a good analogy. I mean, it's the market that's facing a lot of problems, but it's because of a failure in controls and inappropriate risks, not technology. Bitcoin and cryptocurrencies are still a nascent value.
And in many ways, the failures that we've seen, in terms of troubleshooting, actually show that the technology works when you believe that blockchains leave an audit trail for regulators to use.
Beyond the current disruption, we believe the recession will present opportunities for companies like ours to make strategic decisions based on this.
For a successful future. We have to think about how to weed out the bad actors.
This is not a situation where we see failure around technology. We have seen technology do what it is supposed to do. But just because these assets are decentralized doesn't mean they're immune to counterparty risk, contagion, or any of the broader challenges we see in a centralized market structure.
Do you see something cultural, perhaps, in the way the industry has developed? I'm thinking here of the venture capitalists' approach to their target investments.
Why didn't these VCs go to the Bahamas first and maybe talk to the team, see how they work, some of the basic things a mutual fund might do before investing in a business: go to the factory and see how does it really work? . Perhaps there is too much trust in human beings.
So everyone has to do their homework. I think it's also important that the revision level is there. From our point of view, we make sure that confidentiality is always completely transparent.
We always answer questions that review our policies and procedures. And it is this level of diligence that we follow when signing some of our partners. So yeah, we would expect everyone in the industry to follow suit. I think it is somewhat surprising that this does not appear to have been the case.
Indeed. Alright, what about other areas of cryptography?
We used to think that FTX was stable and solid. What about stablecoins? Will this be an area of strength or an area of possible big risk for the industry if a breakaway from a large stablecoin occurs? Do you see these types of threats coming?
Well, they have become popular in recent years, but there are several types of stablecoins. They have had a positive impact, especially those that tend to be the most used.
And they certainly are a useful way to change the value of a blockchain, as you can see with a very popular stablecoin issued by Circle, which has a 1:1 ratio of US dollars in the bank account.
Of course, the risk is related to the quality of a stablecoin's reserve. And we've seen how things can go downhill very quickly if the reserve isn't big enough and people start to leverage the asset without the underlying collateral being available.
So again, I think it's important that we see the right level of regulation -- we see confirmation that dollars back every token as key to the framework that we need to achieve this.
I think there's a silver lining because they definitely provide value and there's still a use case. We just need to make sure they are used for their original use cases and therefore bring the right value to the market. It is when we see the emergence of these high leverage environments that we start to see problems.
From what you just said, I have a feeling that perhaps between Tether and Circle's USDC, Tether is not considered the stronger of the two.
Tether was very reluctant to carry out a full audit. It's been going on for years. And at this point, I imagine people are a little nervous as to why they won't do a proper audit. Is this problematic for the industry? It seems like a very strange way to run your business. Surely it should be in Tether's interest for an audit to take place?
Of course, but it really depends on the transmitters that work. Looking at the big picture, it all comes down to transparency and disclosure. Because here at Bakkt, we've always taken a highly compliant approach. This work has resulted in us being in a very strong position with respect to disclosures and the policies and procedures we follow.
We are regulated to the highest levels available. And as we continue to see the regulatory environment evolve, we will always follow the path of highest compliance, whether we achieve it through the state or federal approach.
For example, we have licensing agreements with 50 states, but when we see more regulation coming from federal agencies, that's welcome.
