BAKKT Acquires Half a Billion in Crypto Custody

Bakkt, once the talk of the town while it launched at the end of the last bear in September 2019, and soon after became a flop, is nonetheless still somewhat standing, though making a loss.

$2 billion of a loss in 2022, though $1.8 billion for “intangible assets impairments” which we take to mean crypto. Then some $100 million for Q4 in actual losses.

So they’re restructuring, laying off people, while at the same time they’re welcoming a new team.

Apex Crypto has been acquired by Bakkt for $150 million with a bonus option of $40 million, with this little known entity having some half a billion in crypto custody.

“Launch a crypto offering in under 45 days while preserving your brand identity,” Apex Crypto says.

We take that to mean you can sort of copy paste their code, put it on your website, and just like that you’re now like Coinbase.

Bakkt claims Apex Crypto has about 5 million end-users, though 30 customers. They too have seen a loss however for their latest filing, about $6 million for 2022.

Yet their volumes are somewhat impressive at $3 billion. Down from $9 billion in 2021, but there’s clearly demand for this Apex product.

For Bakkt, just 2 bitcoin settled futures have exchanged hands for the April contract, that’s 2 bitcoins.

Offering these futures was the whole point of their business when it launched in 2019. Backed by ICE, NYSE’s parent company which still has a 66% share in Bakkt, there was some hope at the time these futures would offer an alternative to CME’s fiat bitcoin futures.

Alas the then new entrant clearly underestimated the competition from crypto native-ish entities, like Kraken just to mention another one, and a key factor in this space as re-shown by FTX: time in custody (literally for Sam Bankman-Fried) matters.

Bakkt just never answered why they should be trusted with holding crypto as a newcomer, when these other entities had been offering the same while having the benefit of being tested through time.

So now, “our focus is on providing scalable B2B2C crypto and loyalty solutions that enable businesses to offer their customers unique experiences… we’re supporting the relationship our partners and clients have with their customers rather than competing in any way, whether real or perceived,” Gavin Michael, Bakkt’s CEO, said in an earnings call last month.

They’re making some millions in revenue from that, $15 million for Q2, but crypto loyalty programs is more what you’d think for dogecoin.

The hopes were much higher, but this might work too though crypto processing tends to meet the question of why not do it yourself?

For crypto payment processing, something like BitPay was seen as a bridge, an introduction for the very new technology until merchants figure out how to copy and paste some code. And loyalty programs are a niche of that.

The Apex angle however, ignoring the regulatory aspects if say we wanted to integrate it to Trustnodes, might be interesting because that’s a fairly difficult thing to copy paste and more importantly because it deals with the custody for end customers.

Just how trustworthy is the service that we’d put ourself and our potential customers at risk, and whether it does what we think it does based on their statements, is a different matter.

But for market fit, it might work. Bakkt though isn’t quite what you’d think of when looking for that sort of solution – and as we started off with earnings, we had actually forgotten what it was for.

That outcome is a first in crypto. Not what they would have wanted or we would have wanted, but it is the first time a huge debut flops completley.

But the name Bakkt is memorable and in crypto – despite the flop which has long been forgot – is associated with positive emotions, if we speak for ourself in stating so, because of that whole anticipation at the time.

The brand therefore is probably still very valuable, and since most have forgotten just what Bakkt was, a good business can be built out if they figure just what is a good market fit.

That’s the hard part, because the different nature of crypto means the trust earned in traditional finance doesn’t necessarily transport and clearly it is not sufficient by itself.

We wouldn’t trust a commercial bank to hold our actual crypto for example, not initially anyway and not unless they offered full insurance at no extra cost as we can just hold it in our own wallet or on an exchange.

As such, a name like Goldman Sachs or NYSE doesn’t mean much in bitcoin where custody is concerned, because they haven’t custodied bitcoin at scale and so no one knows whether they can be hacked.

Bakkt therefore is not the only traditional company that has sort of failed to make an entrance in that area.

Because whatever regulators say and all the rest, the market in this space cares more about hackers or the Bankman-Fried sort.

However, to prove this is generalization, Apex is potentially different because they’re a new entrant in a new area, and so trust is secondary to choice.

Cryptonians, as risk averse as they are, remain nonetheless very willing to take risk when it is the frontier or something like it.

All that to say take nothing for granted in this space and certainly not your non-crypto brand, but Bakkt remains standing at what might be the end of a second bear for them, and so something may well come out of it in the end.

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• Source: https://www.trustnodes.com/2023/04/19/bakkt-acquires-half-a-billion-in-crypto-custody