President-elect Donald Trump and the organization that bears his name continue to show their interest in the crypto sector as the Trump Media and Technology Group (TMTG) – the parent company of Truth Social – is reportedly seeking to acquire the crypto trading platform Bakkt in an all-stock purchase.
According to sources who spoke with the Financial Times on Monday, discussions have already advanced to the point that negotiations about which units of the business TMTG will keep and which will be divested are already occurring.
Shares of the two companies were propelled by these reports with Bakkt stock experiencing a 162% surge and multiple trading halts on Monday amid a spike in volatility while shares of TMTG experienced a 13.3% increase once these rumors captured the attention of mainstream media.
TMTG Has Cash, Bakkt Needs It
TMTG has been struggling to deliver positive results to investors and reported a substantial net loss of $363 million during the first nine months of its 2024 fiscal year while producing just $2.6 million in revenue throughout this same period.
However, investors – many of which are die-hard Trump supporters – have managed to keep the company’s market capitalization at $7 billion despite the lack of a solid business model that justifies this valuation.
Meanwhile, Trump Media’s latest quarterly report shows that its cash reserves stood at nearly $673 million.
On the other hand, just days ago Bakkt reported total revenues of $328.4 million produced during the third quarter of 2024 and a small net loss of $6.3 million. However, the company has made some troublesome statements about its financial stability that questioned its ability to stay afloat.
Also read: How to Buy Trump Media Stock in 2024
Bakkt’s liquid reserves stood at around $36 million by the end of this past quarter (excluding customers’ funds and restricted cash) while it burned nearly $20 million during this same period.
“In October, given the considerable margin compression we’ve seen in the custody space, we began investigating a possible wind-down and dissolution of Bakkt Trust due to its lack of market traction and high cost of capital due to regulatory requirements. As this process has progressed, we have also worked to find strategic alternatives for Bakkt Trust,” the firm’s CEO, Andy Main, commented in the press release that accompanied the quarterly report.
Trump Media may not be interested in this business unit either as it has proven to be a burden for Bakkt’s core trading business amid the elevated cost of regulatory compliance.
Trump’s Political Connections May Facilitate the Deal
The acquisition of Bakkt could be linked to Trump’s political influence as the former CEO of the crypto trading firm, Kelly Loeffler, was appointed co-chair of the President elect’s inauguration committee.
Loeffler is also married to the head of the Intercontinental Exchange (ICE), Jeffrey Sprecher. She left the CEO position at Bakkt after she was appointed to the US Senate by the Governor of Georgia, Brian Kemp.
The connection to the deal seems obvious as ICE founded Bakkt and currently owns 55% of the platform. Back in 2018 when the company was registered, it counted on major backers such as Microsoft, Starbucks, and venture capital firms like the Fortress Investment Group.
Bakkt Would Join World Liberty Financial as Trump’s Portfolio of Crypto Ventures Keeps Growing
The timing of this acquisition is also interesting as Trump officially launched his company’s new decentralized finance (DeFi) venture called World Liberty Financial just weeks before the election.
According to some reports, the Trump Organization holds a big chunk of the total supply of the WLFI token and is entitled to receive up to 75% of the trading fees that the token generates.
The acquisition of Bakkt would fit into a growing interest in the crypto sector at a point when industry observers and major players in the space expect that his administration will push forward comprehensive legislation to bring some much-needed regulatory clarity to the industry.
In addition, Trump’s election win has catalyzed a significant surge in the value of cryptocurrencies with Bitcoin already surpassing the $90,000 mark in the past few days while the overall valuation of crypto assets exceeded $3 trillion for the first time in history as per data from CoinMarketCap.
Considering the significant tailwinds that the sector is experiencing, scooping up Bakkt’s at a point when the firm is struggling financially, which has possibly depressed its valuation, may prove to be a great deal for TMTG.
That said, the company has no successful experiences in the crypto sector thus far. World Liberty Financial is still an experiment and has not brought to the table anything new compared to the existing business models in the DeFi space.
In addition, the significant concentration of power held by the Trump family over the protocol undermines the core principles of blockchain technology – i.e. decentralization.
TMTG is Looking for Ways to Deploy its Massive Cash Reserves Profitably
Despite the market’s enthusiasm about the deal, Trump Media still faces significant operational challenges and given its little expertise in the crypto space, the move to acquire Bakkt seems like a desperate attempt by TMTG to improve its numbers in the short term.
Truth Social, the flagship right-leaning social media platform endorsed and promoted by Trump, only has around 76,000 daily active users compared to X’s massive user base of 100 million.
Meanwhile, Bakkt is struggling to stay listed on the Nasdaq Stock Exchange as it recently received a delisting notice that forced the company to perform a 1-for-25 reverse split.
Financial experts have offered mixed perspectives on the deal. University of Florida finance professor Jay Ritter noted: “The only thing Trump Media has demonstrated they’re good at is selling overvalued equity.”
Also read: Best Crypto Exchanges Right Now: Top 14 Picks for 2024
However, Ritter acknowledged the potential strategic value of using their “big stockpile of cash” to acquire an operating business capable of generating revenue and profit. That seems to be TMTG’s only option as Truth Social has essentially no hope of becoming profitable.
Meanwhile, Georgetown University finance professor Jim Angel observed that while Trump Media’s primary asset is the president-elect’s name, “the crypto crowd has backed the president quite strongly, and now they’re expecting a payoff.”
On the other hand, Matthew Tuttle, CEO of Tuttle Capital Management, acknowledged the crowded nature of the crypto space but noted that “the market likes what they see so far” in this potential deal based on how equity prices have reacted to the news.
Thus far, official representatives from Trump Media have not responded to requests for comment while Bakkt has acknowledged the existence of these reports but stated that it does not comment on “market rumors or speculation.”
The completion of this deal could revamp the finances of Trump Media on short notice by taking advantage of an existing business in the crypto space.