Regulation

Bakkt acquires custodian DACC as it builds out its own solution for storing cryptocurrencies

Quick Take

  • Bakkt is acquiring Digital Asset Custody Company, a custodian of cyptocurrencies and other digital assets. 
  • The move is made amidst regulation concerns over Bakkt’s proposed digital warehouse plan, which the Commodity Futures Trading Commission (CFTC) is yet to approve. 
  • DACC would be integrated into Bakkt’s own custody solution, in an attempt to obtain approval from the NYDFS and CFTC to launch its platform.

Crypto exchange Bakkt is stepping up its game in becoming a serious player in the bitcoin exchange business.

The Intercontinental Exchange (ICE) backed venture announced on Monday that it has acquired Digital Asset Custody Company (DACC), a custodian of digital assets, per a Medium post by Bakkt COO Adam White. 

Bakkt is currently building its own custody solution to store customers’ bitcoins. To comply with the federal and state regulations, it is also seeking a license from New York Department of Financial Services for approval to “serve as a Qualified Custodian for digital assets,” according to White. 

On the other hand, DACC provides custody solutions that help institutional investors safe keep their crypto and digital assets. The acquisition of DACC will allow Bakkt to integrate DACC’s existing custody service with its own bitcoin custody product and comply with the state and federal regulatory requirements. 

“The team’s experience integrating multiple blockchains and operating cutting-edge consensus mechanisms is a valuable addition to our team and future product line,” said White. “As we look to scale and support custody of additional digital assets, DACC’s native support of 13 blockchains and 100+ assets will serve as an important accelerator.” 

DACC co-founder Matthew Johnson also confirmed this news in a separate Medium post and noted the company will “continue to operate as normal as new members of the Bakkt team.” Johnson explained that DACC decided to join Bakkt because they share a “commitment to security and a belief that building infrastructure to facilitate institutional activity in cryptocurrencies will yield wide-spread benefits and broader adoption.”

Since ICE announced its ambitious plan for Bakkt to be a full stack bitcoin futures platform, it has been trapped by a series of regulatory hurdles, sources say. It has been delaying the launch date of its exchange platform since the end of 2018, pending approval from the Commodity Futures Trading Commission (CFTC). In an interview with CoinDesk, CFTC Chairman J. Christopher Giancarlo explained that the CFTC has concerns over Bakkt’s plan to store bitcoins in its own digital warehouse. 

“A potential challenge here, and as we saw with bitcoin futures, is that the other asset class participants in the clearinghouse don’t always want the exposure to mutualize their risk on their interest rate or commodity futures with somebody else’s cryptocurrency holdings,” says Giancarlo.

With this acquisition of DACC, however, Bakkt is looking forward to accelerating the development of its custody product and obtain the much needed green-light from the CFTC to launch its exchange. 

“Bakkt isn’t going to be a stodgy old company,” a source tells The Block.

Frank Chaparro contributed to this report.