Bakkt brings focus back to crypto custody in Q2 earnings

Quick Take

  • Crypto services firm Bakkt is refocusing on crypto custody as a key business priority, aiming to address the need for secure storage of digital assets after recent market events.
  • The company has experienced a surge in client interest and qualified sales opportunities in the custody segment, with plans to expand its platform by adding more assets and supporting institutional staking for yield generation, according to its Q2 earnings. 

It's back to the basics for crypto services firm Bakkt. 

The company, which reported quarter 2 earnings on Thursday, highlighted its renewed push into crypto custody — a business that served as the company's foundation prior to its public listing on the New York Stock Exchange. In 2020, the firm made headlines for its so-called Bakkt Warehouse, which offered $125 million in insurance for custody clients, as well as its business relationship with bitcoin bull Paul Tudor Jones. 

Following a number of business shifts and management changes, the firm shifted its focus to a retail payments app and later to loyalty and rewards following the acquisition of Bridge2 Solutions. After its acquisition of crypto brokerage service provider Apex, custody appears to be a big priority for the firm once again, with the company noting in its earnings that "recent market events have highlighted the difficulty in storing digital assets safely and the need for multi-custodian access and secure self-custodial functionality."

In the aftermath of crypto's meltdown last year, trading shops and crypto hedge funds have been keen to diversify their custody and exchange providers to limit exposure to counterparty risk. 

Flight to quality 

The firm said that it is expanding its client base in the custody segment, benefiting from "a flight to quality with strong increase in inbound client interest."

"We have successfully signed new custody clients and are engaged in late-stage negotiations with multiple prospects across broad client verticals," the firm added. 

Qualified sales opportunities are up 10x in the first half of the year compared to the second half of 2022, the firm said. 

Bakkt's business spans back-end infrastructure for loyalty and rewards points as well crypto and trading solutions via its Bakkt Crypto Solutions business. The latter unit counts companies like Webull as clients. The company reported $335.3 million in crypto services revenues, which represents the crypto purchases facilitated by Bakkt on behalf of its clients. Those purchases are marked at face and shown as revenues. Operating expenses topped $398 million.

Shares in Bakkt fell after the earnings drop and are trading hands at $1.37 per share. 

As for its future plans for custody, the firm plans to add more assets to its platform and support institutional staking to provide yield generating opportunities for its institutional clients.

"In this enhanced offering, we'll maintain all of the elements that make Bakkt Custody exceptional. It will continue to offer a compliance-first focused approach with multi-layered security and outstanding operational management. These upgrades will make it easy to launch additional products such as the ability to add new blockchain networks and the assets on those networks, retail open loop and institutional staking, which add field generating opportunities for our institutional clients," said Bakkt CEO Gavin Michael in the analyst call.

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