Bakkt Stock: The Emergence Of A Crypto-Economy Giant (NYSE:BKKT)

Bakkt Holdings (NYSE:BKKT) is headquartered in Alpharetta, GA just northeast of Atlanta. Bakkt’s parent company Intercontinental Exchange (ICE) is headquartered nearby in Atlanta. ICE holds a 68% ownership of Bakkt and is also the owner of the New York Stock Exchange, along with a dozen other global financial exchanges. Bakkt was born in 2018 out of ICE’s desire to fill a void for institutional crypto custodial and exchange services.

Institutional Ownership In BKKT

ICE’s strategy as the parent company of Bakkt is to maximize long-term shareholder value for ICE’s shareholders. No surprise there, but this speaks to the level of support that ICE is providing Bakkt to assist in its success. ICE maintains majority control of the outstanding shares, while allowing a minority amount of shares to float publicly.

ICE believes that by bringing Bakkt public it can provide the support and direction to enable this emerging growth company to achieve a far greater market valuation by trading on the NYSE. Assisting in Bakkt’s success is the strategy for maximizing shareholder value at ICE. Having this level of support from your parent company, who is the global leader in the operation of financial exchanges and clearing houses, is very good news for Bakkt shareholders.

In addition to ICE’s 68% ownership stake in Bakkt, other early institutional investment includes ownership stakes by Microsoft (MSFT), Starbucks (SBUX), et. al. Combined early investment from institutional investors totals about 80% of outstanding shares

Institutional money manager Invesco is headquartered in Atlanta local to the headquarters of both Bakkt and ICE. Atlanta is a relatively small investment community where investors often share ideas. Invesco recently filed a 13-D that disclosed a 7% ownership stake in Bakkt. Fintel reports that Invesco purchased another 2M shares of Bakkt among 2 separate funds managed by this large institutional investor. Fidelity’s significant ownership position is in addition to the 80% ownership of ICE and early investors.

The remaining minority of shares available to public investors may prove to be a profitable trade as ICE seeks to assist Bakkt in becoming a successful growth company. ICE has the resources and relationships to guide Bakkt’s growth and maximize shareholder value for ICE. CEO Sprecher of parent company ICE believes that Bakkt may be a disruptive force in the market by implementing blockchain based crypto solutions to be cheaper, safer, faster, and more efficient than credit card payments:

Recently, CEO Sprecher was asked about their ownership position in Bakkt Holdings by the JP Morgan analyst during a recent ICE earning’s conference call. Sprecher’s response included the following quote: Bakkt is, “… an all-weather name that can grow on top of growth.” “And so we’re very, very high on that company and want to give it every opportunity to demonstrate its value to the market.”

It is important to note that ICE brought Bakkt public to unlock the value of this growth company primarily for the benefit of ICE shareholders. The very high institutional ownership of Bakkt imparts a strong sense of confidence on the part of these investors for the future of this emerging growth company.

Due Diligence And Key SEC Filings

Bakkt is an emerging growth company that is now launching its expanding business model beyond its initial legacy business of institutional crypto currency trading and custodial services. Because it is early in the development of the Bakkt business model, revenue growth is starting at low levels and may deliver triple digit growth for the foreseeable future. Stock’s experiencing triple-digit revenue growth can deliver strong performance for investors.

In one sense, the SPAC market has been a throwback to earlier days before private equity came to dominate the best companies prior to their IPOs. In recent years, private equity has absorbed much of the stellar growth achieved by successful, private tech companies. The model for private equity has been to then bring these winning companies public near peak growth. With inflated valuations, and the best years of growth behind these companies, many of these IPOs were disappointing for retail investors.

The recent SPAC market has brought a few quality companies directly to the retail investor early in the development of the business model of these companies. Buying and holding these winners during their best growth years can create great opportunity for the retail investor. Instead of private equity soaking up all of the wealth-building growth in the early years of a company, the SPAC market enables retail to perform due diligence and discover winning companies for ourselves.

The tradeoff is that you may have to be patient for longer as the business model develops in these nascent companies. Bakkt appears to be in the process of launching a succession of partnerships with major corporations currently. As these launches begin ramping revenue growth higher, they will likely become cumulative to deliver strong revenue numbers. Bakkt’s emerging growth appears to be concurrent with the rapid expansion of the global crypto economy. This might indicate that Bakkt is a growth company within a growth industry, the gold standard for finding winning emerging growth stocks.

Emerging growth historically has yielded many of the multi-bagger trades that are the holy grail of investors willing to accept a higher level of risk. This is where due diligence is essential, but is never a guarantee for success. Beware that the potential for higher rewards is accompanied by the potential for higher risk. Emerging growth stocks may carry a greater degree of risk than more established companies.

Bakkt’s SEC filing’s page is here. Below are two key recent filings:

• This prospectus was recently filed ahead of the 4/15/22 lockup expiration.
• Bakkt’s 2021 Annual Report dated 3/31/22 can be found here.

The Bakkt Management Presentation can be found here. This document likely accompanied an SEC filing, as part of the IPO deal deck used for marketing the investment.

B2C Vs. B2B2C

The excerpt below is from Bakkt CEO Gavin Michael’s letter to shareholders in the 2021 annual report:

The following key difference between the Business 2 Consumer, B2C, model versus the Business 2 Business 2 Consumer, B2B2C, model is an important distinction for investors to consider:

• In the B2C model a company has to spend huge amounts of valuable capital on marketing to individuals. Bakkt is not this.

• In the B2B2C model Bakkt partners with major corporations, and then gains leverage from the size and scale of the partner’s customer base. The larger corporate partner pays the cost of marketing Bakkt’s service to its own customer base. Very efficient.

Few other competitors carry the prestige and pedigree of Bakkt and its parent company ICE. This is why a relatively young, emerging growth company such as Bakkt can land partnerships with major corporations like Mastercard (MA). Just days after coming public in September 2021, Bakkt announced their partnerships with Mastercard and Fiserv (FISV) on the same day.

By leveraging its parent company’s support and reputation, Bakkt is able to partner with the largest companies in the world. Please reference Bakkt’s existing partnerships with Apple’s (AAPL) Apple Pay, and Alphabet’s (GOOG) (GOOGL) Google Pay. BKKT plays a supporting role as these major corporations rollout their marketing campaigns for Bakkt’s service on the major company’s platform. Very efficient marketing plan and business model that few competitors can match.

Emerging Growth Company Expanding Upon Its Core Business Model

Bakkt’s institutional crypto exchange and custodial services were launched in 2018. Bakkt provides the institutional grade crypto trading and custodial services with the highest levels of security, competence, regulatory compliance, and the reputation of having ICE as their parent company.

Bakkt is developing several different, significant revenue drivers in its expanding business model. The institutional crypto custody and trading business is one of these growing revenue streams. The following article is dated 2018 after the founding of Bakkt by ICE. It speaks to the foundational advantages that are inherent in the Bakkt infrastructure: NYSE Operator’s New Bakkt Platform Beats Coinbase, Says Tom Lee | Bitcoinist.com

Recently, institutional crypto firm Nexo has chosen Bakkt to custodian its customer’s BTC, and ETH: Bakkt Selected by Nexo to Securely Custody Bitcoin, Ethereum.

Major Wall Street investors and large U.S. corporations view Bakkt as one of the top options for handling their crypto-related business. This top-tier reputation enjoyed by Bakkt and its parent company ICE is a strong catalyst for Bakkt’s ability to land major corporate partnerships. Bakkt and the NYSE are both in the ICE global ecosystem of exchanges and clearing houses, leveraging the same resources.

More recently, Bakkt has begun expanding its business model beyond its core crypto exchange and custodial services for institutions. The very diverse emerging business model of Bakkt extends its reach into a number of high-growth industries. The following 3 graphics excerpted from the Bakkt Business Presentation speaks to the diversified business model that promises strong growth ahead:

Bakkt is positioned at the intersection of blockchain, crypto, and Defi. These are all high-growth spaces. Much of Bakkt’s pioneering tech infrastructure is now being built. Bakkt is an early mover in some of the greenfield spaces that it has entered. Building out this blockchain infrastructure is likely to be a project that accelerates as Bakkt grows and gains experience.

The Macro Opportunity: Global Adoption Of The Crypto Economy

Some of us experienced the advent of the personal computer technology wave, that was followed by the Internet technology wave. The current hyper-adoption phase for blockchain, Defi, and crypto technologies is a part of every new, significant technology wave. The current macro of the global adoption of the crypto economy may present investors with many opportunities. Financial services leader Fidelity recently has enabled investors to include Bitcoin in their 401k retirement plans. This is a seminal event that will likely bring successive waves of new capital investing into the finite Bitcoin digital asset.

The rangebound price action of Bitcoin YTD in 2022 belies the significant amount of steady investment that continues to flow into building the global crypto economy. This year is shaping up to be another strong one for the growth of blockchain technology, Defi, and crypto. In fact, 2H 2022 could see a breakout for the adoption of all things blockchain, including DeFi and crypto. The crypto economy genie is out of the bottle now, and it cannot be recaptured. The inevitability of the crypto economy becoming ubiquitous is a foregone conclusion.

News notifications from CoinDesk and Bitcoin.com report the waves of capital flowing almost daily into building the infrastructure of these digital asset spaces. The global embrace of the crypto economy advances daily. Proper regulation may be a bullish catalyst for the crypto economy. New capital inflows may occur as the wealthy boomer demographic diversifies into crypto in a meaningful way. This is the catalyst that Bitcoin bulls believe will lift the price of BTC to $500K and even $1M per coin. Already, 25% of U.S. adults plan to start investing in crypto for the first time. About 20% of U.S. adults already invest in crypto. This digital asset class is becoming mainstream.

Airbnb (ABNB) CEO Chesky reports that consumer’s top request for 2022 is crypto payments. Bakkt provides exactly that solution for corporations who are unable and unwilling to build their own blockchain infrastructure to accept crypto on their platform. Bakkt can enhance the customer experience and increase corporate revenues by also offering a loyalty rewards program. Bakkt provides a value-added, revenue generating service for consumers and corporations.

This landmark white paper by Visa (V) in January 2022, entitled, “The Crypto Phenomenon: Consumer Attitudes & Usage,” confirms the Wells Fargo and Airbnb indications that we are in a mass adoption phase for crypto. Furthermore, Visa finds that the demographic clamoring for crypto usage extends up to the age 45 segment of the population. This movement to embrace the crypto economy is expanding among all key demographics.

The Visa white paper also indicates that Bakkt’s business model is on target with its offerings. Bakkt’s crypto-linked card, Bakkt’s crypto rewards program, and Bakkt’s Crypto Connect platform for banks are all identified as key drivers of consumer acceptance and growth.

Many former crypto critics are now being pressured by the rising political and economic strength of the crypto industry to admit a change in attitude. If you are still not convinced of the global adoption of the crypto economy, then you are in a dwindling minority. 2022 is expected to see the number of people who own crypto globally eclipse the 1 billion milestone. This fintech study estimates half the planet is expected to own a crypto wallet into 2024:

Bakkt’s Long List Of Existing Partnerships Suggests Strong Growth

The graphics below speak to the ability of ICE and Bakkt to land partnerships with major U.S. corporations. Bakkt is now launching crypto services for existing partners, with the likelihood of strong revenue growth ahead.

Existing partnerships between Bakkt and major U.S. corporations have begun launching over the past year. The pace of launches may be accelerating now as Bakkt’s infrastructure continues to grow. Recently, Wyndham Hotels became active for 90M of Wyndham’s customers.

The market is expecting confirmation of the Mastercard partnership’s launch soon. Bakkt’s crypto services for some portion of Mastercard’s 700M cardholders was slated to launch in Q1 2022. Bloomberg covered this joint presser between Mastercard and Bakkt during March 2022’s SXSW event. Traders might expect the Mastercard-Bakkt partnership to provide a bullish catalyst when the launch is finally announced.

Another major catalyst for Bakkt here in Q2 2022 is likely to be the launch announcement of the Crypto Connect program for banks. It is notable that Bakkt has relationships with most major U.S. banks already. Crypto Connect could become a major driver of revenues for this emerging growth company.

Bakkt’s Innovative Blockchain Tech Is Disrupting Loyalty/Rewards

On page 35 of Bakkt’s 11/12/21 8K-A you will find an abbreviated list of major U.S. corporations who are already existing loyalty partners with Bakkt. These relationships and their revenue production are expected to develop steadily in the coming quarters. The excerpt below is taken from Bakkt’s filing:

“Leveraging our acquisition of Bridge2 Solutions, our loyalty redemption capabilities support enterprises with leading loyalty and rewards programs (which we call “loyalty partners”), such as Citibank, Delta Air Lines, United Airlines, Choice Hotels, Wells Fargo Bank, Bank of America, and Mastercard.

Consumers traditionally have valued their loyalty rewards programs. Now the innovation of Bakkt’s blockchain technology gives consumers the opportunity to convert loyalty rewards points into crypto, or cash, if desired. These loyalty rewards programs on the Bakkt platform enable consumers to instantly convert, spend, or send assets to friends, merchants, or anyone. Online purchases, in-store purchases, or converting loyalty rewards into cash or crypto to transfer into a consumer’s investment account are all possible options via the Bakkt platform.

Loyalty rewards used to be valuable to consumers. Now Bakkt has super-charged the value of these loyalty rewards by making them easily/instantly convertible into hard assets. Disruptive technology on the Bakkt platform that corporate partners and their customers value greatly.

Bakkt’s Crypto Connect Platform For Banks

Bakkt’s Crypto Connect Platform enables banks to offer crypto services for their customers:

Launching here in Q2 2022 with several community banks on board already, Bakkt’s Crypto Connect platform may experience strong growth and possibly attract the nation’s largest banks in the near future.

Total Addressable Market For Crypto Compensation

Bakkt’s new relationship with BringMeThat.com enables customers to pay with crypto for delivery by this gig economy company. Also, this new partnership has Bakkt building infrastructure to give delivery drivers in the gig economy the option to accept some portion of their worker compensation in crypto.

The business of enabling delivery companies to accept crypto for payments could rapidly grow into a strong flow of revenues for BKKT. Laying the foundation for the technology with BringMeThat opens the door for additional relationships with every delivery company in the U.S. and abroad.

Perhaps much more significant is the revenue stream that could emerge from providing worker compensation in crypto payments. What other industries might also want to provide this attractive option to their employees? What might be the TAM for making crypto compensation payments to workers?

In 2020, the Bureau of Labor Statistics reported nearly $9 trillion in pay to U.S. workers.

It is unknown what percentage of U.S. worker compensation that workers might want to receive in the form of crypto payments. Suffice to say that Bakkt’s new entry into making worker compensation payments may become significant.

New Partnerships, New Products, New Markets, And New Coins

Two new appointments to Bakkt’s board were announced on 4/22/22. They include Ms. Simeone, who currently serves as Etsy’s Chief Legal Officer and Corporate Secretary. Possibly, a new partnership between Bakkt and Etsy would be a very attractive and natural combination for both companies

Bakkt announced on 5/2/22 a strategic alliance with Global Payments (GPN), a NYSE-listed public company. Reading the press release, you may note that this collaboration is very much in keeping with the strengths of the emergent crypto economy, as reported in the Visa white paper discussed earlier in this article. Noteworthy, is that this alliance directly confirms the acceleration of Bakkt’s international expansion plans.

Bakkt has an existing relationship with Apple via Apple Pay. On more than one occasion Bakkt CEO Gavin Michael has stated only that Bakkt is, “in advanced discussions,” with Apple to expand the relationship. Clearly, if this existing relationship is expanded with Apple, then this would likely become a very powerful catalyst to move Bakkt shares much higher.

The long list of major U.S. corporations who are existing partners with Bakkt are in various stages of post-launch, or preparing for upcoming launch, on the Bakkt platform. The combined size and scope of the reach for these major corporations is impressive, and would likely be more than sufficient to drive Bakkt revenues much higher in the coming quarters.

Bakkt continues to announce new partnerships, new products, new markets, and CEO Michael states that new cryptocurrency coins will be added to the Bakkt platform. All of these expected developments indicate for strong revenue growth in numerous greenfield opportunities. Bakkt is innovating with disruptive technology, and first/early mover advantages in several industries at once.

Bakkt shares many resources, relationships, and parent company ICE with the NYSE. Recently, it has been reported that the NYSE has filed trademarks that indicate its direction to open a NFTs marketplace. Bakkt’s growing infrastructure would likely benefit from such a move by ICE and the NYSE. Recent investments indicate that ICE and the NYSE are expanding their product offerings, and Bakkt is likely to participate in this expanding business model.

Full Disclosure

I am long Bakkt shares currently with a core position that I intend to hold long term.

Notably, I posted my first Trade Alert on my initial long position in Bakkt on 10/19/21 shortly after the SPAC IPO date. The long position was at $9 per share, which on 10/25/21 soared to over $55 per share, with a peak at about $60 the next morning in the pre-market of 10/26/21.

This trade was posted in my Seeking Alpha Marketplace service, Trader’s Idea Flow by Bull & Bear Trading. Here is the link to that 10/19/21 post that resulted in a 600% gain in about 6 trading sessions. I sold my BKKT position into the strength back in October 2021. Recently, I have repurchased BKKT and I have built a new position for the long term.

The daily chart of Bakkt below illustrates the 10/25/22 600% gain:

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The Market Momentum Gauges® based on 7,500+ stocks continued negative Friday at Negative 137 and Positive 18. The negative value continues above 40 warning level of adverse market conditions.

Summary

• The global crypto economy is here to stay, and it will only grow larger. In fact, the growth is accelerating globally now as crypto is being embraced for its utility, yield, appreciation, and value as a hedge against inflation. The global adoption of crypto is now advancing rapidly.

• Bakkt already has major corporate relationships with a growing number of America’s most prominent companies for its crypto economy services.

• Major relationships, greenfield opportunities, early mover advantages, and disruptive blockchain technologies could make Bakkt a cornerstone of the emerging global crypto economy.

• Bakkt has intelligently positioned itself for growth in the right place at the right time. This emerging growth company displays many of the traits of a wealth-building stock. Now we see why ICE maintains a controlling 68% interest in its bid to maximize shareholder value.

• Bakkt’s First Quarter 2022 results are scheduled for 5/12/22.

Conclusion

Emerging growth stocks offer great upside potential, if the company can execute on their business model. However, these high risk / high reward stocks are rife with the potential for negative events to turn south and cause losses for even the most diligent investor.

Bakkt is a high risk / high reward stock suitable for only aggressive growth investors. Risk management measures should be used in this trade.