The Breakdown - The Latest Chapter in the Bakkt Saga Lies with DJT

Episode Date: November 20, 2024

Bakkt launched in 2018 and was supposed to be the great crypto institutional hope. After a few years of doing not much, it went public via SPAC in 2021. It's share price has subsequently fallen 96%. And yet it's now up huge on news that the company is looking to be acquired by Trump Media Group. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, November 19th, and today we are talking about the latest in the long, strange journey of BACT. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, we have a funny one to start. You might have been following along the long-sorted tale of BACT. This was a company that was founded all the way back in 2018 by ICE, the owners of the New York Stock Exchange.

Their original idea was to offer physically settled Bitcoin futures to institutional traders, and in the depth of that, crypto-winter, they were seen as the institutional savior, the company that was going to bring institutional investors into the market. But it never really exactly got off the ground. The platform later pivoted to custody and other back-end infrastructure and went public via SPAC in 2021, but never managed to achieve profitability, and its shares were down 96% since listing. In February of this year, back disclosed they had about 12 months of runway left.

In April, they executed a 25-to-1 reverse stock split to avoid being delisted from the NASDAQ due to their share price falling below a dollar. Well, now, it seems like there may be a future for the company yet, as Donald Trump's media group is reportedly in advance talks to acquire them. According to reporting from the FT, the group, which also owns Truth Social, is closing in on an all-share purchase of the crypto platform. Markets are excited. Backstock has almost tripled in price since the news broke.

Unsurprisingly, Trump Media Group itself has seen their stock price soar in the wake of the election result. Despite only generating $2.6 million in revenue last year, the company has a $6 billion dollar valuation. That, of course, gives them plenty of space to use their stock to make acquisitions. Trump currently owns 53% of the group and said in September that he has no plans of selling his stake. The value of the deal is not known, but as of last night, Bact had a public market valuation above $400 million. There are two possible reads on this acquisition. The first is that the Trump family is simply looking to invest more heavily in crypto companies and Backed as a useful vehicle

for future plans. Bac's custody service holds one of 34 New York Bid licenses granting them access to that market. However, FT sources said that that division is likely to be wound down and won't be included in the deal. Another more cynical take is that this is a bailout for political allies. Back's founding CEO, Kelly Leffler, was appointed to fill a Georgia Senate vacancy during the previous Trump administration, and is also the co-chair of the committee arranging Trump's inauguration. For our purposes, I think it's more interesting to speculate on the legitimate business interest side of the equation, and some are wondering then what Trump could do with a zombie Bitcoin Exchange. Isabella Kaminska, a former editor of F.T. Alphaville, not known for their particular love of

crypto, and writer of the Blind Spot newsletter has a pet theory. Her general view since March has been that the Trump media group could serve, quote, as a private funding mechanism or umbrella vehicle to help Trump raise private funds to bypass congressional financing blocks for controversial policies. In July, she noted that Bitcoin and Trump would become synonymous following the Nashville conference. She suggested that the Bitcoin's Strategic Reserve would be difficult without congressional approval, and it might be more easily done using a special purpose vehicle. With this news breaking, Kaminska shared private text messages sent in July that seemed too crazy at the time to discuss in public. She wrote, there is one weird way maybe he could do it. What about the micro strategy plan? Get DJT corp to buy Bitcoin. Then if the dollar falls,

you, the president, offer a special deal to the U.S. government. Donate all capital gains from DJT to the government. So then people could buy DJT shares. The proceeds are used to buy Bitcoin. The Bitcoin value goes up, but there is a profit transfer agreement to the government. It's your SPV, basically, and it's already listed. I think that could work. Adding further commentary, Kaminsky wrote, I hypothesized all this could be achieved with the executive's federal power of procurement. If people still think this is insane, I don't think they appreciate just how much privatization is coming in the Trump administration.

Then again, not everyone thinks that this is what it's about. David Bailey, the CEO of Bitcoin Magazine, who has, of course, been integral in bringing Trump world into the Bitcoin space, tweeted that, quote, strategic reserve has nothing to do with this. So what it does have to do with then, I guess we will just have to have. to wait and see. Meanwhile, one more bit of Trump news, according to the Wall Street Journal, President-elect Trump met on Monday with Coinbase CEO Brian Armstrong. According to people familiar with the matter, they were expected to discuss staffing appointments for the administration.

At this stage, several key financial positions are still open. We have the well-reported struggle for the Treasury Secretary role, with polymarket odds now placing former Fed Governor Kevin Warsh as the frontrunner based on yesterday's reporting. We also don't have a final choice for heads of the SEC or CFTC. We don't know a ton about Armstrong. Armstrong's view on cabinet appointments based on his tweets. In the past, he supported Hester Perce for SEC Chair, although Perce has removed herself from consideration. Otherwise, Armstrong has remained silent on personnel decisions. Armstrong has been vocally in support of the Bitcoin's Strategic Reserve, however, stating that the U.S. should adopt the Lummis plan of outright

purchasing Bitcoin. More than anything, though, the news reinforces that the crypto industry has more than just a seat at the table under Trump. It seems to have an advisory role. Earlier in the week, it was also reported that Ripple CEO, Brad Garlinghouse, sent Circle again. executives had also spoken with the Trump transition team. Nick Carter of Castle Island Ventures can hardly get more bullish, tweeting, truth social looking to buy back to Trump running appointments by Brian Armstrong and you're fudding? Simon Didick of Moonrock Capital wrote, so Trump is reportedly set to me privately with Brian Armstrong? It really feels like a simulation recently. The level of interest he as an actual U.S. president is showing in our industry is unreal. Now, whether or not the

Trump admin plays the micro strategy strategy, micro strategy is doing a hell of a lot of that micro-stratology, themselves. The firm disclosed the purchase of $4.6 billion worth of Bitcoin last week at an average price of roughly $88,600. That's more than twice the size of the previous week's $2 billion purchase, which was already the company's largest by far. Micro Strategy now owns 331,200 BTC, worth around $30 billion. They've increased their holdings by 20% in Bitcoin terms this month and almost 40% year-to-date. The company's Bitcoin Treasury is now larger than ExxonMobil or Intel's cash on hand. Around the 13th largest corporate treasury is, in the U.S. In terms of the fundraising, the company has now sold around 30% of the $21 billion

in stock they issued at the end of October. That shelf offering was intended to last three years, but at this rate, the market will have absorbed the additional stock by the end of this year. The stock is currently trading at a 2.8 times premium to the underlying Bitcoin and hasn't dropped below 2.4 this month. It seems the company is more than willing to sell stock as fast as possible at these multiples, and more importantly, the market stands ready to buy it. Wasting no time, Micro Strategy announced another round of convertible debt issuance on Monday. The company will sell 1.75 billion of convertible notes at a 0% interest rate maturing in 2029. Once issued, Microstrategy will be around 17% of the way through their plan to raise 42 billion in equity in debt to

purchase Bitcoin over the next three years. And to keep in mind, again, it's been less than three weeks since the plan was announced. There's still a lot of hand-wringing about the sustainability of the company's debt. Prior to the latest round of debt issuance, Microstrategy had their lowest leverage ratio since they began buying at around 1.15x. The leverage ratio hasn't been above 1.3 since early this year, and it seems the company views mild leverage using fixed-term debt as entirely safe. And while we all knew this was going to get crazy, it's starting to dawn on people just how historic micro-strategy's plan could be. Tashar Jane, the managing partner of Multi-Coin Capital wrote, as the Microstrategy Playbook

of issuing debt and equity to buy ever more Bitcoin plays out, it will replace Soros breaking the bank of England as the most legendary event in modern capital markets. A trader called Gladiator tweeted, Micro Strategy bought more Bitcoin this past week alone than any other company in the world currently holds in total. I am not exaggerating when I say Micro Strategy will be a top five company in the world by the end of 2025 and the biggest company in the world by 2030. You are not bullish enough. Analyst Joe Consorti noted a strange flippening, tweeting, At a 0% yield, Micro Strategies 1.7 billion convertible note is currently priced as being more risk-free

than every tenor on the U.S. Treasury curve. Investors are demanding a negative risk premium from the company that is literally just using their money to smash buy Bitcoin. Finally, the Crypto Monk got the game theory here saying, no chance for any other company to catch up to them now. First-mover advantage is locked in. Not that others won't try. Marathon Digital, for example, announced 700 million in convertible debt issuance to buy Bitcoin as well. The world's largest publicly listed Bitcoin minor adopted Bitcoin as its primary treasury asset over the summer. At the same time, they spent $100 million buying Bitcoin from the open market. The company plans to first retire existing convertible notes that expire in 26, which will cost around $200 million and will use the balance to purchase Bitcoin.

The move will term out their debt until 2030. Interestingly, the market responded poorly to the announcement, selling off by 14% for the day. Longtime Bitcoin or Matt C thought this was a bad sign, tweeting, Bitcoin Minor Marathon Holdings getting judged harshly for this announcement. Marathon tacitly admitting it's too slow and expensive for them to mine Bitcoin rather than just buy it. In the afternoon, Marathon announced the issuance was already filled, with CFO Salman Khan tweeting, oversubscribed and upsized to a total $1 billion. In other words, it seems like there was a ton of demand for the convertible notes, and the fall in stock price might have been a headfake.

A follow-up on a story from before. Yesterday, we mentioned that Bitcoin ETF options could go live within days or weeks following approval from the CFTC, and it appears the timeline is actually much shorter. On Monday, the Options Clearing Corporation wrote that they are preparing for the clearance settlement and risk management for the products. Speaking with Bloomberg yesterday, Alison Hennessy, the head of ETP listings for NASDAQ said, our intent at NASDAQ is to list and trade these options as early as tomorrow. Getting these options listed on iBit into the market, I think, will be very exciting for investors

because that's really what we have heard from them. Bitwise, CIO, Hunter Horsley, says that he expects options on his company's fund to begin trading on Wednesday. The options will go live with extremely conservative position limits, which could limit the market effect. Bloomberg's senior ETF analyst Eric Balkuna said, This group of ETFs did not need this. They are successful on their own merit.

But this is a pretty big tailwind to an already juggernaut situation. options allow you to express opinions on something with more specificity. Assuming everything goes smoothly, we won't have to guess whether ETF options are bullish or bearish. In fact, by the time you're listening, the first day of trading could already be in the books. So that is the story from here. A lot of dynamism in these markets. It's price action, it's buying stories, it's new products. There is a lot going on, and of course we will be here to cover it all. For now that that is going to do it for today's breakdown. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.

Thank you.