It's time to stop calling Bakkt a 'crypto company'

It's hard to wrap my head around Bakkt. 

In 2018, Fortune's Shawn Tully painted a picture of Bakkt as an upstart venture laser-focused on transforming bitcoin "into a trusted global currency," thereby ushering it into the mainstream. To that end, Bakkt —with an eye-popping $180 million in the bank— would nudge bitcoin into the 401(k) market, credit card industry, and futures, Tully wrote. 

Thus far, Bakkt has been focused on the institutional market, launching a suite of derivatives products and a qualified custodian offering. The physically-delivered future has arguably had the most success, cementing a view of Bakkt as an "institutional crypto exchange."

But Bakkt never really set out to build a crypto exchange.

As I noted in an op-ed in August, the goal has always been broader, spanning custody, trading, and payments. Recent announcements, however, suggest that Bakkt is not only not a crypto exchange, it isn't really a crypto company either. It is undoubtedly not a bitcoin company. 

Recent news of the firm's upcoming consumer app serves as Exhibit A.

Another piece by Fortune's Tully, which reveals exclusive information about the firm's app, barely mentions bitcoin. It offers no follow-up on Bakkt's progress getting bitcoin into folks' 401(k) accounts. The app itself will serve as a wallet for an array of assets (including crypto).

Indeed, the focus of the app is less about making it easier to spend bitcoin (which people can do through existing apps like Flexa) and more about making it easier to spend your airline miles. That's right: airline miles. 

As Tully wrote: "Wouldn’t it be great if you could open a digital wallet and view the sum total of all your rewards programs for hotels, pharmacies, and bank cards, all in one place, converted into cash?"

Honestly...it's something I've never thought about. Granted, I don't fly frequently.

Still, it raises an interesting question: How did Bakkt go from bitcoin to airline miles? Sources say Bakkt's sights have broadened over the past year. As a unicorn, Bakkt has to justify its lofty valuation, and, at the end of the day, crypto is too small of an addressable market. Externally, the firm is trying to distance itself from the "crypto" moniker, noting it is targeting all sort of digital assets (airline miles, cryptocurrency, reward points, etc.)

Indeed, Intercontinental Exchange chief executive officer Jeffrey Sprecher described Bakkt as "an aggregator and a marketplace for a broad set of digital assets" during a recent earnings call.

The expansion into such digital assets – fueled in part by Bakkt – points to a broader market trend.

As revenue growth from stock market data (part of the lifeblood for exchanges) continues to shrink, as noted by data from Burton-Taylor, exchanges are eyeing new opportunities. 

"The world has changed," Kevin McPartland of Greenwich Associates noted. "If Goldman Sachs is in the middle market savings account business, then creating markets and applications around crypto and airlines miles isn't that big of a stretch for ICE."

"You can see where this fits in, it is an alternative market place and those alternative market places can yield alternative data," McPartland added.

That's valuable in a new environment for trading in which everyone is squeezing each other: asset managers squeezing brokers who, in turn, squeeze the exchanges. 

"And it is no secret that the technological improvements of matching buyers and sellers have made it very low cost," McPartland said.

In a sense, that kind of broader vision for Bakkt makes sense in light of ICE's history. 

The company, which pioneered the digitization of commodities markets, began as Continental Power Exchange — originally, targeting energy trading. Today, ICE's operations are truly massive, spanning equities, commodities, foreign exchange, indexes, and futures across the world. ICE's crown jewel – the New York Stock Exchange – sees billions of shares trade a day; it reported over $5 billion in revenues during the fourth quarter of 2019. 

"I swear if I was starting this company today I would probably call it the Intercontinental Massively Scalable Network and Database Company because that's what we are," Sprecher said during the firm's fourth-quarter earnings call.

"That's what airline miles and gaming swords and credit default swaps and delivering barges that we manage in Rotterdam for fuel oil that's what happens," he added.