Wall Street’s crypto infrastructure darling, Bakkt, has struggled to lock onto a viable product offering, and recently warned stockholders that it might not survive. Another pivot is underway.
When Bakkt launched in 2018, the markets were ecstatic. “Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, is now in the bitcoin business,” read the MIT Technology Review. Fortune predicted Bakkt would bring bitcoin to your 401(k). The promise was that ownership by a highly regulated entity would bring “trust and transparency to digital assets.” At the time, the Alpharetta, GA-based company was being run by Kelly Loeffler, who is married to ICE CEO Jeffrey Sprecher and later went on to briefly serve as a U.S. Senator from Georgia. The crypto infrastructure company would enable its parent to compete with rival CME Group in selling bitcoin futures. But unlike CME, whose contracts were settled in cash, Bakkt’s futures would be settled with actual bitcoin thanks to its “warehouse,” which would store customers’ tokens.
In fact, ICE had even grander plans. When Loeffler revealed the roadmap for Bakkt in August 2018, she announced partnerships with Starbucks and Microsoft and promised “an integrated platform that enables consumers and institutions to buy, sell, store, and spend digital assets on a seamless global network.” Think buying Starbucks frappuccinos with bitcoin via Bakkt’s consumer wallet app that would enable the crypto-fiat conversion.
In 2021, at the height of the crypto and SPAC euphoria, Bakkt spun out of ICE and became one of crypto’s only publicly traded companies after merging with a special purpose acquisition company called VPC Impact Acquisition Holdings. The combined entity would have a war chest of over $500 million in cash, including a $50 million contribution from ICE. Within two weeks of initial trading, Bakkt Holdings’ NYSE-listed shares soared from $8.74 to nearly $43, giving it a market capitalization of $2.1 billion.
But while prosperity prevailed in crypto markets, Bakkt’s management was quietly struggling to find a product offering that would work, according to former insiders who spoke with Forbes on the condition of anonymity. Over the course of five years, the crypto infrastructure company embarked on no fewer than three different strategic pivots ranging from bitcoin futures to a universal consumer super app, as four different chief executives guided the company. Meanwhile, Bakkt burned through cash and its stock continued to decline, week after week. Recently, its stock was trading for less than $1, having wiped out some $2 billion in shareholder value in two years. This, not to mention more than $1.1 billion in write-downs for parent company ICE, which still owns more than 60% of Bakkt. Earlier this month, the company amended its SEC filings to inform shareholders that it didn’t have sufficient cash to survive another year.
Says David Trainer, CEO of investment research firm New Constructs, “It continues to amaze us how much some investors are willing to pour into money-losing enterprises with no real business model.”
Seizing on the excitement surrounding crypto’s potential as a new alternative asset, Bakkt’s initial strategy, devised by ICE CEO Sprecher and wife Loeffler, was to become the nation’s preeminent regulated marketplace for digital assets. Marketed as the Bakkt Warehouse, the company provided custody services for physically-delivered bitcoin futures and options contracts, which were traded on ICE’s futures exchange and cleared through its parent’s clearing house. It would also provide custody services to institutions and wealthy individuals who wanted to dabble in digital assets but wanted the security of regulatory oversight from entities like the New York Department of Financial Services.
Unfortunately, the offering proved to be a dud from its inception. On its first day of trading in September 2019, Bakkt traded only 73 bitcoin futures contracts, worth around $700,000. When its chief rival CME launched in 2017 its volume was more than ten times greater on its first day. Overshadowed by CME, Bakkt ultimately threw in the towel. In July 2023, ICE delisted nearly all of Bakkt’s bitcoin monthly futures and all monthly options contracts. “There was no open interest in any of the futures or options expiration months that were delisted, and no new futures or options expiration months will be listed for trading going forward,” ICE said in the accompanying announcement.
Bakkt’s second big idea was to become a crypto-friendly smartphone super app for consumers. The company had a new CEO named Mike Blandina who had previously worked at Paypal and Google and in 2020 Sprecher announced that ICE had spent close to $300 million helping Bakkt acquire loyalty rewards provider Bridge2Solutions. The acquisition allowed the company to launch a digital wallet called Bakkt App which would host an array of assets, including cryptocurrencies, loyalty and rewards points, and gift cards. It launched in March 2021 with fanfare and partners including Choice Hotels, Starbucks, Best Buy, and Fiserv.
However, despite promising partnerships like one with hotel loyalty giant Wyndham Rewards and another with food delivery service BringMeThat.com the Bakkt App never gained traction. In 2021, the company lost $304 million on $39 million in revenues.
“They thought that people would want a loyalty program that would let them convert points to crypto,” says one former insider. “The problem was that the issuing companies did not want to make their points exchangeable.”
Things got worse in 2022 when the company reported a loss of $1.9 billion on $54.5 million in revenues. Even worse for digital asset boosters, less than 1% of Bakkt’s revenues actually came from its crypto services according to its annual report.
By mid-March 2023, the Bakkt App was shut down, however chief executive Gavin Michael was already onto Bakkt’s next gig. The company had announced that it was buying a white-label crypto trading company called Apex Crypto for $55 million in cash plus up to $145 million in stock.
Bakkt says its new approach to crypto markets is “B2B2C.” In other words, it now targets consumer-facing institutions with its technology services, chiefly backend trading operations. Apex Crypto was rebranded Bakkt Crypto with the mission to help businesses add trading into their services similarly to how Paxos enables PayPal’s crypto brokerage. Apex already had 5.8 million crypto-enabled accounts and over 30 institutional clients including WeBull Pay, Stash and Public.com. It’s now Bakkt’s biggest revenue generator. During Q2 and Q3, Bakkt Crypto produced some $527 million in revenue though the company still reported combined net losses of $102 million for the two quarters.
Last week, just one week after it said it might run out of cash, Bakkt announced that it had secured approval for a “shelf registration,” — a process by which a company registers a new issue of securities with the SEC that can be gradually sold over a period without having to secure a separate approval each time. The approval could permit Bakkt to raise $150 million in capital in one or more offerings over three years.
The company declined Forbes’ request for an interview, pointing to its recent disclosures about its financial condition. Most of its former and current partners and investors, including ICE, did not respond to requests for interviews or declined to comment.
One brave stock analyst, Andrew Bond of New York City’s Rosenblatt Securities, has Bakkt rated as a buy. He believes that the beleaguered company’s current pivot might actually stick. “They have $100 million in cash, their burn is going down each quarter,” says Bond who cites the firm’s custody business, which was relaunched in November, as a potential winner given the surge in interest in crypto following bitcoin’s 160% gain in 2023. “Institutions and ETF issuers may be looking for more than one custodian,” says Bond.
In addition, Bakkt is growing its presence globally. It has customers in Spain, Mexico, Argentina, and Brazil through a partnership with stock trading platform Hapi and is pursuing regulatory approvals in other jurisdictions including the United Kingdom, Hong Kong, Spain, and throughout Latin America. On Thursday, the company announced that it signed up California-based Swan Bitcoin, an investment platform focused solely on Satoshi Nakamoto’s creation, as a new B2B2C partner. And on the cost-cutting side, Bakkt is merging Bakkt Crypto (formerly Apex) with its marketplace, according to its latest filings.
While most analysts and investors have long since abandoned Bakkt as a hopelessly risky penny stock, Bond thinks Bakkt, which has a market capitalization of less than $250 million, could be a takeover target. “Think smaller brokers, technology providers, back-end players that aren’t in the space yet. It’s an easy entry and a regulatory compliant one,” he says.