Bakkt recently announced the completion of its first funding round, raising an impressive $182.5 million. In the current bear market, securing such substantial investment is exceptionally rare, demonstrating strong investor confidence in Bakkt's capabilities and business model. Notable participants in this round include the Boston Consulting Group, Microsoft, and Horizons Ventures (backed by Li Ka-shing). However, what caught my attention wasn't the list of investors or the amount raised—it was Starbucks' absence as an investor.
As one of Bakkt's initial founding partners, Starbucks' decision not to participate in the first funding round or become a shareholder raises intriguing questions.
The Missing Piece: Stablecoins in Bakkt's Strategy
From my perspective, Starbucks' non-participation was entirely predictable. When Bakkt first launched, I analyzed its strategic direction in an article titled What To Make Out of Bakkt?. While applauding Bakkt's ambitions, I questioned the foundational logic behind its partnership with Starbucks.
Here's why:
- Bitcoin's Volatility vs. Stable Value Needs: Bakkt trades Bitcoin derivatives. Its physically settled Bitcoin futures product undoubtedly helps establish fair Bitcoin pricing. However, Bitcoin's inherent price volatility makes it unsuitable as a payment medium.
- Strategic Misalignment: Although Bakkt aims to provide seamless solutions for digital asset creation, circulation, storage, and trading, its product strategy lacks support for stable-value digital currencies—the very type Starbucks relies on for daily payments.
Subsequently, I proposed in another article (Stablecoins: The Missing Piece in Bakkt's Strategy) that Bakkt should adopt a stablecoin strategy. Only by offering stablecoins could Bakkt achieve seamless integration with Starbucks. Their shared customers could then use a single wallet to trade cryptocurrencies on Bakkt's exchange while effortlessly converting them into stablecoins for payments at Starbucks.
However, Bakkt has evidently excluded stablecoins from its current product roadmap. This decision creates a fundamental incompatibility between Bakkt's business model and Starbucks' operational needs. Consequently, Bakkt isn't an ideal partner for Starbucks at this stage, making Starbucks' absence from the initial funding round a logical outcome.
Bakkt's Current Challenges
Bakkt's existing product strategy deviates significantly from its original objectives. Presently, it offers little more than Bitcoin-based futures. While its product differs somewhat from those of other derivatives exchanges, this advantage isn't durable. For instance, Germany's Stuttgart Exchange plans to introduce physically settled Bitcoin derivatives, foreshadowing intense future competition for Bakkt.
Other critical challenges include:
- Limited Market Potential: Bitcoin's market size constraints raise doubts about achievable derivatives trading volumes.
- Regulatory Uncertainty: U.S. regulators currently disapprove of Bitcoin, given its trading on unregulated exchanges and susceptibility to market manipulation.
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Starbucks' Greater Opportunity
Interestingly, Starbucks stands to gain more from cryptocurrency applications than Bakkt does currently. As discussed in my previous articles (Why ST Exchanges Are Stablecoin Infrastructure and Are Stablecoins and STs Related?), stablecoin infrastructure relies on ST (Security Token) exchanges.
Key insights:
- ST-Backed Stablecoins: As ST assets grow, so will stablecoins collateralized by them. This mechanism ensures stablecoins meet Starbucks' global needs.
- Strategic Positioning: Like Facebook, Starbucks could become a pivotal player in future stablecoin ecosystems as a circulation partner (see my analysis: Facebook's Stablecoin Strategy).
- Current Landscape: While stablecoin use cases are evident, providers remain scarce—a space worth watching closely.
FAQ Section
1. Why didn't Starbucks invest in Bakkt's first funding round?
Starbucks likely abstained due to Bakkt's lack of stablecoin integration—a critical component for aligning with Starbucks' payment systems.
2. What advantages would stablecoins offer Bakkt?
Stablecoins would enable seamless transactions between Bakkt's trading platform and Starbucks' payment network, creating a unified user experience.
3. How does Bitcoin's volatility affect Bakkt's model?
Bitcoin's price fluctuations make it impractical for everyday payments, limiting Bakkt's appeal to merchants like Starbucks that require stable-value currencies.
4. What regulatory hurdles does Bakkt face?
Bakkt operates in a regulatory gray area, as U.S. authorities remain skeptical of Bitcoin due to its unregulated trading environments and manipulation risks.
5. Could Starbucks benefit from cryptocurrency without Bakkt?
Absolutely. Starbucks stands to gain significantly by partnering with stablecoin providers, positioning itself similarly to Facebook in emerging digital currency ecosystems.
6. What's Bakkt's main competitive threat?
Traditional financial institutions like Germany's Stuttgart Exchange entering the Bitcoin derivatives market could erode Bakkt's unique value proposition.
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