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Crypto partnerships expected 'to move at a slightly more conservative pace': Bakkt CEO

Bakkt CEO Gavin Michael joins Yahoo Finance Live to weigh in on the crypto winter and why he thinks it will lead to a healthier market overall, looming regulation, and what's next for partnerships in the space.

Video transcript

- So Bitcoin, it's in the red today, off just about 2% and struggling to find a catalyst, prices off more than 40% over the past six months. But is there a silver lining to this crypto winter? Our next guest thinks it could lead to a healthier and more sustainable market. We have Yahoo Finance's reporter Jennifer Schonberger, who is joined now by Gavin Michael, CEO of Bakkt.

JENNIFER SCHONBERGER: Thanks, Seana. Gavin, welcome back to the program. It's so great to see you.

GAVIN MICHAEL: Thanks, Jennifer. It's great to be here.

JENNIFER SCHONBERGER: So, Gavin, Bakkt reported second-quarter earnings just last week. You narrowed your second-quarter loss. Revenue was up 60%. But you tempered your guidance.

What's your outlook for crypto markets as we go through the latter half of this year? Certainly we've seen a bit of a rebound, but not back to all-time highs. What do you think is going to drive things in the latter half of this year? And are we in a prolonged downturn, as people keep calling it, a crypto winter? Or is this more of just a bear market cycle akin to what we see in more mature markets?

GAVIN MICHAEL: So I think, Jennifer, first and foremost, I mean, crypto isn't going away. There's still strong interest and momentum with our partners, many of whom are multinational companies. So they've been watching this space for a long time. They understand the peaks and troughs that we're seeing.

We also see consumer interest in crypto remaining solid. I mean, we referenced a recent Morning Consult study that showed only a 3% drop in adults considering purchasing crypto through January and June of this year.

With that being said-- and you spoke about our guidance-- we are anticipating that the partners may move at a slightly more conservative pace. They're being more thoughtful about how they enter the crypto economy. We still continue to make steady progress with our partners across the board. And we expect to activate our crypto services in the second half of the year. And we'll see a significant increase, ramp-up through 2023.

But we see people being more thoughtful about how they enter the crypto economy. And that's where our platform comes into play, because we provide them with great optionality in how they enter that crypto economy. It can be through custody. It can be through buy/sell. It can be through crypto rewards, this passive acquisition of crypto. And so we continue to innovate. We're continuing to drive our crypto capabilities to meet these shifting market demands.

JENNIFER SCHONBERGER: So then, Gavin, do you expect a rebound here in 2023? Or how long do you think we're going to be in this lull?

GAVIN MICHAEL: So I think really what we're focused on is the fact that we're seeing strong interest in crypto from across our partner base. We're seeing this change in narrative, if you like, from crypto being viewed simply as an investable asset to a more widespread utility across consumers, across businesses, and across institutions. So our work is about working with our partners to really unleash its functionality and its full utility. And we provide them with that institutional-grade platform to allow them to really be creative in the way in which they enter this crypto economy.

JENNIFER SCHONBERGER: Gavin?

GAVIN MICHAEL: I think when we look at-- go on.

JENNIFER SCHONBERGER: Gavin, you said, you mentioned the consumer. And I know that Bakkt has been on the forefront of loyalty programs. You've got a partnership with Mastercard. You just signed one with Visa. What are you seeing there from the consumer? And how much of that do you think is going to feed ultimately into some sort of mass adoption?

GAVIN MICHAEL: So when we work with our partners, and particularly with Mastercard and our recent announcement with Visa, we're really focused on how can we find new entry points for consumers into this crypto economy? And so our focus there is very much on loyalty. We're seeing consumers who value their loyalty points even more in this challenging economic environment. They see it as a way to offset rising costs.

So as we look to find ways to maximize their buying power, we see crypto as an interesting way to be able to reward consumers in a very novel and innovative way, allowing them to enter this market through this passive acquisition. And that's really what our opportunity with Mastercard is about, working with them to be able to introduce loyalty programs through their card issuing base to allow people to find new ways to use their loyalty points, particularly in this moment.

JENNIFER SCHONBERGER: We've seen a lot of bankruptcies in the crypto space this spring and summer, whether it's been hedge funds or crypto lenders. People have been frozen out of their accounts. They've lost a lot of money.

The same rules that apply to traditional brokerages in the traditional securities realm are not applicable within the crypto space. My question is, should they be? Should the SEC be using its current authorities to write rules that would apply to crypto or parlay existing rules in the security space to crypto?

That's a point that I put to SEC Chair Gensler, who says those rules are in place. Yet the industry and investors I speak with are singing a different tune. Given that you're one of the regulated exchanges, what's your take?

GAVIN MICHAEL: So I think, Jennifer, from its inception, we were built to enable investors and consumers to be able to transact in cryptocurrency using a platform that really does meet the highest standards for security, for risk, and for compliance. We're set up with two individually regulated subsidiaries, a trust company, which is the qualified custodian of Bitcoin and Ether, and a marketplace, which is operating our consumer-facing cryptocurrency platform. We separate custody and exchange because we think it provides those additional protections to investors and really does minimize the potential conflicts of interest.

We certainly see and support the notion of a comprehensive and logical framework for oversight. We want to see protections to consumers and to partners in the ecosystem. But we want to make sure we can do it in a way that really preserves the spirit of innovation, because we know that's a hallmark of the space. So we work closely with our regulators to help inform, educate, and respond to the changing environment to make sure we meet that highest standard.

JENNIFER SCHONBERGER: All right, well, we'll have to leave the conversation there. Always so much to talk about with you. Gavin, thanks so much. Hope to speak with you again soon.

GAVIN MICHAEL: Thanks, Jennifer. Absolute pleasure.