Form S-1
We note your response to comment 1 and the introductory portion of your response letter where you state that you intend to include additional, or revised, disclosures in response to the staff's comments in a Current Report on Form 8-K that you will incorporate by reference into the registration statement.Rest of the question
Please revise your next post-effective amendment to include the additional, or revised, disclosures in response to our comments directly therein.
The Company respectfully advises the
Staff that including additional and revised disclosures directly in the Registration Statements in response to the Staff’s comments is neither required by Form S-3 nor useful to investors in light of the evolving nature of the Company’s business and the crypto industry more generally.
Consistent with the integrated disclosure system implemented by the SEC in 1982, Form S-3 allows a registrant to incorporate by reference its past and future reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) rather than having to amend orRead in the reply ↗Rest of the answer
supplement its
Securities Act of 1933 (the “Securities Act”) registration statement and prospectus each time a material event occurs.
Item 12(d) of
Form S-3 provides that “any information required in the prospectus in response to Item 3 through Item 11 of this Form may be included in the prospectus through documents filed pursuant to
Section 13(a), 14, or 15(d) of the Exchange Act that are incorporated or deemed incorporated by reference into the prospectus that is part of the registration statement.” This includes, for example, risk factors (Item 3) and any updates required to reflect “material changes” in a registrant’s business (Item 11). It is customary for a registrant to rely on Item 12 and incorporate all required information and material updates through documents filed pursuant to
Section 13(a), 14, or 15(d) of the Exchange Act. As a shelf or resale registration statement on Form S-3 may be used over a period of three years (or longer), disclosure will become stale over time.
Directing investors to the most recently filed Exchange Act reports of the registrant incorporated by reference into the registration statement, consistent with the instructions to Item 12, eliminates duplicative disclosures while continuing to provide material information. Requiring the Company to include selected disclosures in four separate registration statements that will be outdated with the Company’s next Form 10-K filing is not efficient and will be costly for the Company. Moreover, it does not provide any meaningful benefit to investors and could result in investors looking at outdated disclosures in the Registration Statements rather than the more updated disclosures that are contained in the Company’s Exchange Act filings.
As discussed with the Staff, the Company proposes to include an update to its business activities following its acquisition of Bakkt Crypto (the “Business Update”) in a future Exchange Act filing. The Business Update would include relevant information regarding Bakkt Crypto as well as the additional information responsive to the
Staff’s comments. Originally, the Company proposed filing the Business Update under Item 8.01 of Form 8-K, which would be automatically incorporated by reference into the Registration Statements. Based on the Staff’s objection to that approach, the Company instead proposes to include the Business Update as Item 5. Other Information in an amendment to the Company’s recently filed Form 10-Q for the quarter ended September 30, 2023 prior to the effectiveness of the Registration Statements. A draft of the Business Update is attached hereto as Annex A.
Please disclose your marketing efforts in connection with the Bakkt Crypto platform and clarify whether and how you encourage customers to use the platform, including your digital engagement practices, addressing, without limitation: • The analytical and technological tools and methods you use in connection with such practices and your use of technology to develop and provide investment education tools; • WhetherRest of the question
any of such practices encourage retail investors to trade more often, invest in different crypto assets or change investment strategies; • Whether you use any optimization functions (e.g., to increase platform revenues, data collection and customer engagement). To the extent your use of any optimization functions may lead to potential conflicts between your platform and investors, please add related risk factor disclosure; and • Your data collection practices or those of your third-party service providers.
The Company proposes to revise its disclosure in response to the Staff’s comments. The proposed text is set forth below and included in Annex A under
“—Marketing.”
“We market our platform to our Clients. We generally do not engage in any direct-to-consumer marketing for the acquisition or engagement of end consumers, or Customers. As part of Client engagement, we may assist them in developing their crypto assets marketing strategy but any such strategy is ultimately executed by Clients at their discretion.Read in the reply ↗Rest of the answer
We also have a sponsorship agreement with Caesars Entertainment pursuant to which the theater at Planet Hollywood Resort & Casino in Las Vegas is branded as the “Bakkt Theater.” However, potential Customers are not able to sign up directly with us and need to access our platform through a Client environment.
Clients may choose to market our crypto asset services to Customers. In order to ensure we comply with applicable laws and regulations, we retain the right to review Customer-facing marketing materials proposed to be used by Clients. In specific instances, we require Clients to disclose the services we provide and the related risks in such materials.
We market our products and services to potential Clients using multiple business-to-business channels, such as (i) Company-owned domains (e.g., our website and blog and its social media platforms), (ii) direct marketing, including email marketing and targeted digital advertisements to potential Clients, and (iii) indirect marketing to potential clients via partnerships with existing Clients and other third parties to promote branding and product access for potential clients through existing Client channels.
Since Customers must agree to our terms of use in order to utilize the services offered by our platforms, as part of Customer onboarding, we collect data about Customers from the applicable Client and/or Customer in accordance with our privacy policy. This data is used to complete required processes (e.g., Customer
We note your disclosure in your Form 10-Q for the period ended June 30, 2023 that you “provide custody services for Bakkt Crypto's customers and for Bakkt Trust's standalone custody customers.” Please also address custody services for customers of Bakkt Marketplace. In addition, we note that you acquired Bumped Financial, LLC (renamed Bakkt Brokerage) in February 2023.Rest of the question
Please clarify the activities engaged in, or expected to be engaged in, by Bakkt Brokerage.
The Company proposes to revise its disclosure in response to the Staff’s comments to clarify that custody services for Customers of Bakkt Marketplace are provided by Bakkt Trust Company LLC. The proposed text is set forth below and included in Annex A under
“—Institutional Client Business – Crypto Custody Services.”
“Bakkt Trust currently provides custody services to
Customers of Bakkt Marketplace and to its own institutional customers with respect to bitcoin and ethereum and is in the process of expanding the list of crypto assets for which it provides custody services to include more ofRead in the reply ↗Rest of the answer
the crypto assets which we support for trading. Pursuant to its coin listing policy, Bakkt Trust recently self-certified the provision of custody services for all of the crypto assets traded on Bakkt Crypto and Bakkt Marketplace. For a list of these crypto assets, see the table for Bakkt Trust under “Crypto Assets and Services Offered by Bakkt” above.”
In addition, the Company respectfully advises the Staff that Bakkt Brokerage, LLC is not engaged in any business activities at this time, although the Company maintains its registration as a U.S. broker-dealer. The Company has no current plans for Bakkt Brokerage, LLC to engage in future business activities. Any change in the Company’s plans will need to comply with applicable rules and regulations.
Please revise your disclosure to discuss the capital requirements applicable to Bakkt Brokerage, LLC.
Because
Bakkt Brokerage is not engaged in any business activities and we have no current plans for it to engage in future business activities, we respectfully submit that it is not necessary to disclose the capital requirements applicable to Bakkt
Brokerage. The Company proposes to revise its disclosure to clarify the inactive status of Bakkt Brokerage. The proposed text is set forth below and included in Annex A under “—Corporate Structure.”
“We acquired Bumped Financial, LLC (renamed Bakkt Brokerage), a registered broker-dealer, in February 2023.Read in the reply ↗Rest of the answer
Bakkt Brokerage is not engaged in any business activities at this time, and we have no current plans for it to engage in future business activities.”
We note your disclosure on page 42 of your Form 10-Q for the period ended June 30, 2023 that you receive “client platform fees.” Please revise your disclosure to clarify what these fees are for and who pays them.
disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “—Crypto Assets and Services Offered by Bakkt—Retail Customers – Crypto Asset Trading.”
“We have agreements with Clients that entitle us to receive recurring subscription revenues in the form of platform fees for the use of our platforms by Clients and Customers.” Read in the reply ↗
Please revise to describe the terms and provisions of your insurance policies, including insurance policies covering the crypto assets that you hold on behalf of customers in wallets in your custody or with third-party custodians, including, the amount of coverage, term, termination provisions, renewal options and limitations on coverage.
The Company proposes to revise its disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “—Insurance Matters.”
“We maintain types and amounts of insurance coverage that we believe are appropriate and consistent with customary industry practices. Our insurance policies cover employee-related accidents and injuries, property damage, business interruption, storm damage, facilities, cyber, crime and liability deriving from our activities.Read in the reply ↗Rest of the answer
Our insurance policies also cover directors’, employee and fiduciary liability and officers’ liability.
We may also be covered for certain liabilities by insurance policies issued to third parties, including, but not limited to, our dealers and vendors.
With respect to crypto assets, we maintain crime insurance with
$100.0 million of coverage for amounts held in cold wallets and $25.0 million of coverage for amounts held in hot wallets, in each case, with a $1.0 million deductible. The policy term is one year, from July 1, 2023 to
June 30, 2024. The policy is non-cancellable, other than for (i) a change of control of the Company, (ii) bankruptcy or liquidation of the Company or
(iii) non-payment of premium by the Company. There are no automatic or guaranteed renewal provisions, although we expect to renew such coverage prior to its expiration, if possible. The policy contains customary exclusions and limitations of coverage as per industry standards.”
We note your proposed disclosure that Bakkt Crypto account holders are able to purchase crypto assets, store crypto assets in Bakkt Crypto-controlled wallets, liquidate their holdings, and transfer select crypto assets between a Bakkt Crypto-controlled wallet and external wallets in certain jurisdictions.Rest of the question
Please revise your disclosure to clarify whether there currently are, or in the future may be, any crypto assets that Bakkt account holders are able to purchase that cannot be transferred to an external wallet (i.e., off Bakkt Crypto’s platform). If any such crypto assets are currently known or expected, please revise to affirmatively identify the same to the extent the information is material and reasonably available.
disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “ —Custody Services for the Crypto Assets Supported for Trading – External Transfers of Crypto Assets (through
Bakkt Crypto).”
“Other than in the State of New York, all crypto assets that we make available to Customers are transferable to external wallets, with the exception of Ethereum Classic (ETC) and Dogecoin (DOGE), which are under development and are expected to be supported for transfers in the first quarter of 2024.Read in the reply ↗Rest of the answer
Because we have structured our platforms to be
Client-configurable in several aspects, each Client has the discretion to enable this transfer feature for its Customers. Crypto assets made available to Customers residing in the State of New York are not transferable to external wallets.”
We note your proposed disclosure under this heading that, “Bakkt Crypto offers consumers the opportunity to purchase, store and sell virtual currencies through front-end trading platforms sponsored by Bakkt Crypto’s third-party partners.” Please revise to include diagrams, along with narrative descriptions of how Bakkt Crypto’s business model works, including the different types of customer transactions andRest of the question
depicting the flow of funds between parties involved. Your discussion should clarify your role in the transaction (e.g., principal vs. agent) and at what point(s) in the process commissions and fees are recognized and earned on all customer transactions. In addition, similar information should be provided reflecting all of the company’s rights or abilities to borrow, pledge, repledge, hypothecate, rehypothecate, loan or invest the customer assets as well as their own. In addition, and for example purposes only: • Please revise to describe how transactions are executed and settled. Please also clarify if Bakkt Crypto routes orders to other trading venues and whether customers are required to pre-fund their transactions. • Please revise to clarify how the Bakkt Crypto trading platform differs from or interacts with the trading platform operated by Bakkt Marketplace, and clarify whether or not it is your intent to combine these platforms. • Please identify the third-party partners to which you refer and identify the role of each third-party partner. • You state that Bakkt Crypto is gauging demand for, among other things, “internal and/or external wallet transfers of crypto assets, subject to risk assessment on incoming and outgoing transfers.” Please clarify what this is intended to refer to and how it differs from Bakkt Crypto’s existing operations. • You state that a majority of the fintech partners with which Bakkt Crypto had an agreement “are also part of Apex Fintech Solutions’ client network.” Please elaborate on this statement and how it relates to Bakkt Crypto’s business. • You state that “[i]n most cases, the agreements also contain provisions giving Bakkt Crypto discretion in the choice of crypto assets offered to each partner through its platform…” (emphasis added). Does this mean that, in some cases, Bakkt Crypto is contractually obligated to provide services relating to certain crypto assets that it might not otherwise support? If so, please discuss the regulatory risks associated with these contractual provisions.
Bakkt Crypto offers Customers the ability to purchase, sell, store, and, in approved jurisdictions, deposit and withdraw approved crypto assets, all from within the applications of its Clients with whom Customers already have a relationship. Using Bakkt Crypto’s platform,
Customers can:
purchase approved crypto assets;
store approved crypto assets in custodial wallets; and liquidate their approved crypto asset holdings.
As discussed in Response 7 above, Bakkt Crypto permits Customers in approved jurisdictions to:
transfer supported crypto assets from external wallets to custodial walletsRead in the reply ↗Rest of the answer
maintained by Bakkt Crypto; and transfer supported crypto assets from internal wallets maintained by Bakkt Crypto to external wallets.
In addition, Bakkt Crypto is in the process of developing functionalities enabling Customers to:
subject to applicable regulatory approvals, transfer supported crypto assets between registered Customers of the
Company (“P2P Transfers”); and convert certain loyalty and rewards points into supported crypto assets.
As described in Annex A under “—Crypto Asset Trading,” customers may purchase approved crypto assets through Bakkt Crypto utilizing one of four funding sources:
(1) the Customer’s fiat wallet (see Fig. 1 below and in Annex A);
(2) the Customer’s Banking as a Service (“BaaS”) provider account (see Fig. 2 below and in
Annex A);
(3) the Customer’s brokerage account (see Fig. 3 below and in Annex A); or
(4) the Customer’s points/rewards account with a participating loyalty partner (see Fig. 4 below and in Annex
A; expected to become available in the first quarter of 2024).
Customers may sell crypto assets through Bakkt Crypto. The proceeds from a sale can be directed to one of three potential Customer accounts:
the Customer’s fiat wallet (see Fig. 5 below and in Annex A);
the Customer’s BaaS account (see Fig. 6 below and in Annex A); or the Customer’s brokerage account (see Fig. 7 below and in Annex A).
The funding source is specific to the Client relationship through which the Customer account was opened and is not specified by the individual Customer account holder. For example, if a Customer opens an account with a Client where trades are funded via a BaaS relationship, all sale and purchase transaction-related funds will flow through the Customer’s BaaS account. Customers submit all purchase and sale orders through the user interface of the Client with which they have opened an account.
With respect to Customer purchase and sale orders, Bakkt Crypto operates as a riskless principal and offsets each Customer order it fills by routing a corresponding order to a liquidity provider on a one-to-one basis. Bakkt Crypto settles its transactions with liquidity providers on a net basis.
Customers can submit an order request to purchase crypto assets by specifying the dollar value or coin quantity that they wish to purchase. The Client’s user interface displays the estimated price or quantity, as applicable, as well as any transaction fees. Before sending a purchase order request, the Client must verify that sufficient funds are available in the applicable Customer funding source. If the Customer account has sufficient funds, the Client then sends the order to Bakkt Crypto. Upon receipt of the purchase order, Bakkt Crypto accepts and processes the purchase order and records any order fill transactions on Bakkt Crypto’s internal ledger. Bakkt Crypto recognizes the revenue from markup and/or trade fees at this time in the flow using explicit journal types in the transaction ledgering.
If the Customer’s funding source is a fiat wallet, Bakkt Marketplace will debit the Customer’s fiat wallet on its internal ledger. During the daily net settlement period, fiat funds are transmitted from the FBO account to the Bakkt Crypto transaction account.
Fig. 1 Crypto Assets Purchase Through A Fiat Wallet
If the Customer’s funding source is a BaaS account, Bakkt Crypto sends a message to the Client that a trade has been executed. The Client then instructs the BaaS provider to transfer the funds from the Customer’s BaaS account to its BaaS FBO account. The BaaS provider will debit the Customer’s fiat wallet on its internal ledger. During the daily batch settlement period, fiat funds are transmitted from the BaaS FBO Account to the Bakkt Crypto Transaction account.
Fig.
2 Crypto Assets Purchase Through A Customer’s BaaS Account
If the Customer’s funding source is a brokerage account, Bakkt Crypto sends a message to ledger the funds from the Customer’s Brokerage Account at the brokerage’s clearing firm to the Bakkt Crypto Brokerage Account at the brokerage’s clearing firm. During the daily batch settlement period, fiat funds are transmitted from the Bakkt
Crypto Brokerage account to the Bakkt Crypto Transaction Account.
Fig. 3 Crypto Assets Purchase Through A Customer’s
Brokerage Account
If the Customer’s funding source is a points account at points/rewards Client, Bakkt Crypto will debit the
Customer’s points account. During the daily batch settlement, funds are transferred from the rewards Client account to the Bakkt Crypto transaction account.
Fig. 4 Crypto Assets Purchase Through A Customer’s Points/Rewards Account
For sales, Customers submit an order request via the Client with which they have a relationship to Bakkt
Crypto to sell crypto assets by specifying the dollar value or quantity that they wish to sell. For market orders, the Client displays the estimated price or estimated quantity, which is inclusive of any markup. If the Client is charging any trade fees, those will be displayed and included in the total trade value. Once confirmed by the Customer, the order is then sent to Bakkt Crypto by the Client. Upon receipt of the order, Bakkt Crypto accepts and processes the sale order and records the order fill transaction on Bakkt Crypto’s internal ledger by recording a debit to the Customer’s crypto asset account.
If the Customer’s funding source is a fiat wallet, Bakkt Marketplace will credit the Customer’s fiat wallet on its internal ledger. During the daily batch settlement period, fiat funds are transmitted from the Bakkt Crypto transaction account to the FBO Account.
Fig. 5 Crypto Assets Sale with proceeds to the Customer’s Fiat Wallet Hosted by Bakkt Crypto executed. The Client then instructs the BaaS provider to transfer the funds from its BaaS FBO account to the Customer’s BaaS account. The BaaS provider will credit the Customer’s fiat wallet on its internal ledger. During the daily batch settlement period, fiat funds are transmitted from the Bakkt Crypto Transaction account to the BaaS FBO Account.
Fig. 6
Crypto Assets Sale with Proceeds to the Customer’s BaaS Account funds from the Bakkt Crypto Brokerage Account at the brokerage’s clearing firm to the Customer’s Brokerage Account at the brokerage’s clearing firm. During the daily batch settlement period, fiat funds are transmitted from the Bakkt
Crypto Transaction account to the Bakkt Crypto Brokerage Account.
Fig. 7 Crypto Assets Sale with Proceeds to the
Customer’s Brokerage Account
Currently, all of the outstanding equity interests of Bakkt Crypto are held by Bakkt Marketplace. The Bakkt Crypto and
Bakkt Marketplace platforms are operated separately, though Bakkt Marketplace provides fiat funding services to Bakkt Crypto in instances where a Client does not have that capability. The Bakkt Marketplace platform was originally conceived and built in connection with a consumer app that enabled crypto and other digital asset transactions, and, at the time represented the direct-to consumer business model which is no longer being pursued by the Company.
In contrast, the Bakkt Crypto platform was originally conceived and built as an embedded crypto trading platform that would be integrated into Client environments to service Customers in those environments. Subject to applicable regulatory approvals, which it is presently pursuing, the Company intends to merge Bakkt Crypto with and into Bakkt Marketplace, with the surviving entity of the merger to be renamed Bakkt Crypto Solutions, LLC. The two platforms will then be combined into one business, which will be operated by the surviving entity. Similar to the Bakkt Crypto business model, the combined business will focus on a Client-led, or B2B2C, strategy, in which crypto assets solutions can be embedded into Client environments.
The third-party partners to which we refer in our disclosures are our Clients. Currently, a majority of the Clients with which Bakkt Crypto maintains agreements were initially referred through the client network of Apex Fintech Solutions, the former parent company of Bakkt Crypto (then known as Apex Crypto). We continue to have access to such Client network following the close of the Apex Crypto acquisition.
Bakkt Crypto only offers Customers crypto assets that it has approved for listing on the Bakkt Crypto platform.
The Company does not, and is not authorized to, borrow, pledge, repledge, hypothecate, rehypothecate, loan or invest Customer assets.
We note your references to "virtual currencies" and "crypto assets." To the extent you are using these terms interchangeably, please revise your disclosure to use one term. If these terms are instead being used to mean different things, please revise to define each term on first use.
To the extent we use these terms interchangeably, for clarity, we will revise our disclosure to use only the term “crypto assets.” In certain limited cases, we plan to retain the use of terms other than “crypto assets” in order to align with corresponding legislation or regulations or for other similar reasons. Read in the reply ↗
We note your proposed disclosure under this heading that you are gauging demand for offering the following additional products or services in the near future to your customers: • The opportunity to purchase, store and sell non-fungible tokens or NFTs; • Services for customers in jurisdictions outside of the United States; • Internal and/or external wallet transfers of crypto assets, subject to risk assessment onRest of the question
incoming and outgoing transfers; and • Enhanced capabilities on your trading platform, including support for larger orders and recurring buys, and extending the platform to support institutional execution. To the extent available, please revise to update the status of these potential products or services, including timelines and anticipated costs to making them available to your customers.
As disclosed in Annex A under
“—Bakkt Crypto,” the Company is actively pursuing opportunities to provide its crypto asset trading services in jurisdictions outside of the United States, including the United Kingdom, Hong Kong, Spain and throughout Latin America
(including Mexico, Argentina and Brazil), subject to applicable local regulatory approvals. Bakkt Crypto is currently live with Customers in Spain, Mexico and Argentina through a partnership with a local Client.Read in the reply ↗Rest of the answer
The platform is expected to be live in Brazil through the same Client in December 2023.
The Company does not have any updates at this time on its plans to offer NFTs.
For a discussion of internal and external wallet transfers, please refer to our responses to Comments 7 and 8 above.
Bakkt Crypto executes a de minimis amount of trades for entity accounts in jurisdictions other than the State of New York. Subject to applicable regulatory approvals, Bakkt Crypto intends to expand the provision of trading services for institutional Clients.
Crypto Assets and Services Offered by Bakkt,
We note your table on page 3 identifying all of the crypto assets that you facilitate transactions in. Please revise to also identify all of the crypto asset services that you offer for each asset. Consider also using a table or chart to identify the corresponding services for each asset.
The Company proposes to update the table in response to the Staff’s comment. Please see below and included in Annex A under “—Crypto Assets and Services Offered by Bakkt—Retail Customers.”
“Bakkt Crypto, Bakkt Marketplace and Bakkt Trust facilitate transactions in, and provide services for, the crypto assets listed in the tables below.
Bakkt Marketplace / Bakkt Crypto Solutions
Supported for
Crypto Asset
Symbol
Trading
Transfers
Rewards
Bitcoin
BTC
Yes
Yes*
No
(Planned Q1 2024)
Bitcoin Cash
BCH
Dogecoin
DOGE
No (Planned Q1 2024*)
Ethereum
ETH
(Planned 2024)
EthereumRead in the reply ↗Rest of the answer
Classic
ETC
No Planned Q1 2024*
Litecoin
LTC
Shiba Inu
SHIB
USD Coin
USDC
* Except for the State of New York.
Bakkt Trust
Custody
(Planned Q4 2023)
We note your proposed disclosure that “[a]s of August 2, 2023, [you] have delisted, or determined to delist, 37 of the 45 crypto assets that had historically been available for trading on the Bakkt Crypto platform.” Please revise to clarify the specific date or dates on which the crypto assets were delisted.Rest of the question
Please also discuss how you expect those delistings to impact your business and results of operations in future periods.
The Company proposes to update the table in response to the Staff’s comment. Please see below and in the section entitled “—Crypto Assets and
Services Offered by Bakkt” in Annex A.
“Following the acquisition of Bakkt Crypto, and as further detailed in the table below, we delisted 37 of the 45 crypto assets that had historically been available for trading on the Bakkt Crypto platform. We first requested the delisting of certain crypto assets from the Bakkt Crypto platform in connection with our due diligence review of the Bakkt
Crypto business in 2022.Read in the reply ↗Rest of the answer
Following the closing of our acquisition of Bakkt Crypto on April 1, 2023, and in light of regulatory developments, we undertook an updated review of all crypto assets then available on the Bakkt Crypto platform and determined that it was appropriate to delist certain additional assets. We have also directed the delisting of certain crypto assets in response to charges recently filed by the SEC against crypto asset exchanges alleging that those crypto assets are securities. We believe that these delistings will not have a material impact on our business and results of operations in future periods. While the delisted crypto assets represented approximately 15% of gross profit of Bakkt Crypto at the time of its acquisition by the Company, many of these crypto assets constitute what is referred to in the fintech industry as “meme coins.” Historically, such meme coins have been subject to anecdotal spikes in trading activity which may not repeat for a protracted period of time, if at all. In implementing our coin delisting decisions, we have attempted to mitigate impacts on our business and our Clients and Customers by affording Customers a period in which to exit their positions in the impacted crypto assets as part of an orderly wind-down. We expect our listing and delisting decisions to continue to evolve based on relevant regulatory and judicial precedent.
Crypto Asset (Symbol)
Date of Delisting
AMP
December 6, 2022
CRO; DASH; ONE; LUNA; LUNC; ZEC
February 15, 2023
ALGO; MANA
April 21, 2023
COMP; GALA; YFI; LRC; ICP; BAT; LINK; APE; MKR; REN; BNT; SNX; ATOM; GRT; AAVE; FIL; XTZ; AVAX; UNI; XLM; CHZ; SUSHI; CRV; ENJ; FTM; SOL; ADA; MATIC
We note your proposed disclosure in response to comment 4 that you intend to expand your services to include crypto payouts and crypto rewards. Please provide expanded disclosure regarding these proposed services and disclose the steps necessary to introduce each service. Also please disclose the expected timeline and associated costs and risks related to the development and operation of each service.
The Company proposes to revise its disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under
“—Bakkt Rewards.”
Bakkt Rewards. We are in the process of enabling Clients to offer their Customers the ability to convert loyalty points earned through participation in the Client’s loyalty program into bitcoin (and, in the future, to other crypto assets depending on demand).Read in the reply ↗Rest of the answer
We initially expect to offer this service in the first quarter of 2024.
Customers that elect this service will opt into the program through the Client’s loyalty program user interface and then be referred to a
Bakkt-managed front end to authorize account creation and conversion of certain Client loyalty points into bitcoin. The exchange rate governing the conversion will be determined by (a) the redemption rate of Client loyalty points to USD, (which is set by the Client), and (b) the prevailing market price for bitcoin, which includes a markup agreed upon between the Client and Bakkt. The bitcoin will then be accessible to the Customer via a Bakkt-managed interface, which will allow
Customers to sell bitcoin for USD, link their account at the Client with their bank account, deposit or withdraw fiat currency, and buy, sell and hold other Bakkt Crypto-approved crypto assets. The Bakkt-managed interface will not allow Customers to open an account directly unless they are referred via a supported Client.
Bakkt Rewards will initially be supported by the Bakkt
Marketplace platform and, once it combines with Bakkt Crypto, by the platform of the combined entity.”
In addition, under “—Other
Potential Services” in Annex A the Company will revise its disclosure to state that it has elected to suspend the development of the Bakkt Payouts product indefinitely.
We note your proposed disclosure that you are “evaluating opportunities to offer staking (only to customers in jurisdictions outside of the United States).” Please tell us whether or not you intend to have a staking program, and provide disclosure regarding any staking program to the extent available.Rest of the question
Please also disclose the expected timeline and associated costs and risks related to the development and operation of a staking program. To the extent that you may offer staking to your customers but do not have a timeline related to the development of the staking program, in future filings, please disclose the factors you will consider when determining whether and when to offer a staking program to your Bakkt Rewards, page 3
disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “—Other Potential Services.”
“We evaluated opportunities to offer staking and have postponed further development and rollout indefinitely. Factors relevant to our determination are revenue expectations and compliance with applicable laws.” Read in the reply ↗
Please revise to describe the material terms and conditions of the Bakkt Rewards program, to the extent such material terms are currently known although not finalized. Please address the following points, to the extent the information is material and reasonably available: • Discuss how the platform users earn crypto asset rewards or reward currencies (e.g., points or miles); • Disclose how and when you issue theRest of the question
crypto rewards or reward currencies to a platform user’s account; • Clarify whether you are considering expanding the available rewards to crypto assets other than bitcoin; • Noting your proposed disclosure that existing reward currencies (e.g., points or miles) can be redeemed into crypto assets by platform users, please disclose the exchange rate for redemption of reward currencies into crypto assets, whether it is subject to change and, if so, how and when; • Clarify what rewards other than crypto assets, if any, users are able to receive by redeeming reward currencies; • Clarify whether the reward currencies can be spent outside of your platform or have monetary value outside of your platform; and • Describe any other rights or benefits conferred by the reward currencies (e.g., expiration date, transferability, etc.).
Please refer to our response to Comment No. 13 (as well as Annex A under “—Bakkt Rewards”) for a discussion of the material terms and conditions of the program as well as potential support for additional crypto assets. Read in the reply ↗
Please disclose in greater detail how the Bakkt Payouts program will operate, including how the crypto assets are acquired and whether this service will support all of the crypto assets listed in the table on page 3.Rest of the question
In addition, noting your proposed disclosure that Bakkt intends to support "scheduled automatic buys," which you refer to as "Dollar Cost Averaging," please revise to provide examples illustrating how this program operates. Please also revise your risk factor disclosures regarding facilitating transactions in securities to cover these services.
Please refer to our response to Comment No. 13 (as well as Annex A under “—Other Potential Services”). Read in the reply ↗
As a related matter, we note your proposed disclosure that this product is currently pending the approval of the New York State Department of Financial Services. Please revise to discuss the current status of the approval process, including any contingencies needed to be resolved prior to obtaining approval, and the estimated timing of obtaining approval.
Please refer to our response to Comment No. 13 (as well as Annex A under “—Other Potential Services”). Read in the reply ↗
We note your proposed disclosure that Bakkt Trust intends to expand the list of crypto assets for which it provides custody services to include more of the crypto assets which you support for trading. Please revise your disclosure to specify which crypto assets Bakkt Trust intends to provide custody services for going forward.
The Company proposes to revise its disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under
“—Institutional Client Business – Crypto Custody Services.” Please also refer to our response to Comment 11 above.
“Bakkt Trust currently provides custody services to Customers of Bakkt Marketplace and to its own institutional customers with respect to bitcoin and ethereum and is in the process of expanding the list of crypto assets for which it provides custody services to include more of the crypto assets which we support for trading.Read in the reply ↗Rest of the answer
Pursuant to its coin listing policy, Bakkt Trust recently self-certified the provision of custody services for all of the crypto assets traded on Bakkt Crypto and Bakkt Marketplace. For a list of these crypto assets, see the table for Bakkt Trust under “Crypto Assets and Services Offered by
We note your proposed disclosure under this heading that Bakkt Crypto makes use of third-party providers of custodial services, including Coinbase Custody Trust Company, LLC and BitGo Trust Company, to hold customer crypto assets as custodian…” However, on page 39 of your most recent 10-Q you state that “we do not presently utilize third-party custodians.” Please reconcile these statements.
The Company advises the Staff that prior to its acquisition of Bakkt Crypto, the Company did not use third party custodians, other than minimal amounts at liquidity providers that also provide custody for the purpose of facilitating trading and settlement. However, Bakkt Crypto does utilize third party custodians. Accordingly, we will remove the statement that “we do not presently utilize third-party custodians” from our future filings with the SEC. Read in the reply ↗
Please file any agreement you have for the provision of custodial services as an exhibit to the registration statement pursuant to Item 601(b)(10) of Regulation S-K.
The Company respectfully advises the Staff that the Company does not believe that any of the agreements pursuant to which it provides custodial services
(namely, the BitGo Custody Agreement, the Coinbase Custody Agreement or the Fireblocks License Agreement) is a material contract required to be filed pursuant to Item 601 of Regulation S-K.Read in the reply ↗Rest of the answer
In reaching this conclusion, the Company determined that each agreement was made in the ordinary course of business and does not fall within any of the exceptions set forth in Item 601(b)(10)(ii) of Regulation S-K.
The Company respectfully advises the Staff that companies that provide crypto asset trading services, such as the Company, routinely enter into agreements with service providers in the ordinary course to provide complementary custody services for their trading solutions. These complementary custody solutions are offered by multiple companies, and the
Company could either provide self-custody solutions using the Fireblocks software or another software, or employ the custody services of third-party custodians such as BitGo, Coinbase Custody or other providers. Moreover, the Company has disclosed its intent to consolidate its self-custody services while still offering diversification across custodians for clients that request it, indicating that the services provided pursuant to the third-party agreements will become even less relevant to the Company’s business over time. Such ordinary course agreements need not be filed as exhibits unless they are contracts upon which the business is substantially dependent.
Because the Company can obtain these services or software from other providers and because losing the custody services provided by Coinbase Custody or BitGo or access to the software licensed from Fireblocks would not require the Company to cease providing trading and custody services, the Company’s business is not substantially dependent on any of these contracts. In addition, the revenues derived from custody services are immaterial in amount . The amounts paid under the agreements also constitute an immaterial amount of the Company’s total expenses (representing less than 0.05% of total expenses for the three month period ended
September 30, 2023).
Please revise to disclose the proportion of customer crypto assets that Bakkt Crypto selfcustodies using the Fireblocks Vault service, which you reference. Also please discuss the material risks attendant to self-custodying customer crypto assets.
disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “—Custody Services for the Crypto Assets Supported for Trading.”
“In addition, Bakkt Crypto also self-custodies select crypto assets (less than 8% of total Customer crypto assets were held in custody as of September 30, 2023) to facilitate consumer withdrawals utilizing the Fireblocks Vault service. Self-custodying Customer crypto assets through the use of Fireblocks third-party custody software involves risks related to our reliance on the third party for the certain services.Read in the reply ↗Rest of the answer
These include the implementation of Secure Multi-Party Computation (MPC) key creation software, the provision of software that facilitates a Secure Transfer Environment for the transfer of crypto assets, and workflow authorization functionality ensuring that only Bakkt Crypto specified authorized persons are able to access the wallets for authorized purposes.”
We note your proposed disclosure that you make use of third-party providers of custodial services and that you also self custody customer crypto assets. Please revise to further describe your custodial practices for crypto assets, including the items below: • Discuss what portion of the crypto assets are held in hot wallets and cold wallets, respectively, and whether there are differential storage practices withRest of the question
regard to your own crypto asset holdings versus customers’; • Disclose the geographic location where the crypto assets are held in cold wallets and how the private keys are located; • Disclose the material terms of your arrangements with each of Coinbase Custody Trust Company, LLC and BitGo Trust Company as custodian, including, without limitation: (i) in what manner the custodian is required to store your crypto assets; (ii) whether it is contractually required to hold your crypto assets in cold storage; (iii) what security precautions your custodian is required to undertake; and (iv) what inspection rights you have. Also please clarify whether Bakkt Crypto utilizes the custodial services of any third parties other than those you reference (i.e., Coinbase Custody Trust Company, LLC and BitGo Trust Company); • Identify the person(s) that have access to the crypto assets and whether any persons (e.g., auditors, etc.) are responsible for verifying the existence thereof. Also clarify whether any insurance providers have inspection rights associated with the crypto assets held in storage; • Identify the person(s) that have the authority to release the proceeds from your wallets; and • Discuss how the existence, exclusive ownership and software functionality of private digital keys and other ownership records are validated by the relevant parties. Listing-Related Policies, page 5
The Company proposes to revise its disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under
“—Custody Services for the Crypto Assets Supported for Trading.”
“Bakkt Trust holds at least 90% of the crypto assets held in custody in cold storage and up to 10% of crypto assets (not to exceed $25.0 million in notional value at any one time) in warm or hot wallets.
Bakkt Crypto holds all crypto assets, including Customer crypto assets and the immaterial inventory of crypto assets that Bakkt Crypto maintains for purposes such as facilitatingRead in the reply ↗Rest of the answer
blockchain fee payments and accommodating the impacts of rounding, in omnibus wallets. With respect to mode of storage, a small percentage of all crypto assets (generally not more than 2%) are held in warm or hot storage in order to facilitate daily settlement and Customer withdrawals, while the vast majority of crypto assets are held in cold storage and accessed, as needed, to replenish the warm or hot wallets. The amounts of crypto assets held in warm/hot storage and cold storage are monitored daily by our custody operations team and reviewed by management on a monthly basis.
Assets stored by Coinbase Custody and BitGo are held 100% in segregated cold storage. Both entities are SOC 1 certified. At this time, Bakkt Crypto does not utilize third parties other than Coinbase Custody and BitGo to hold Customer crypto assets as custodian.
To ensure the security of crypto assets, we do not disclose the geographic location where such assets are held or the identity of the persons who have access to them and the authority to release those assets from wallets. Private keys are held in controlled locations dispersed throughout the United States according to SOC 1 audit procedures to ensure appropriate security.
There are dedicated members of our custody operations team responsible for daily reconciliation of wallet holdings. New members of our custody operations team are required to complete trainings and test simulations and are provided with a runbook on our custody procedures. New members of the custody operations team, like all our employees, are also subject to background checks and drug testing. The daily reconciliations prepared by the custody team are reviewed and analyzed by management monthly and provided to external auditors at least annually, or as otherwise requested. Designated individuals within the custody operations team are responsible for the initiation and approval of outbound wallet transactions, as per our policies and procedures. Access rights are managed according to the principle of least privilege. These rights are maintained according to our IT security policy and subject to quarterly review by our IT security team. The existence, exclusive ownership and software functionality of private digital keys and other ownership records are subject to annual audits conducted by external auditors.
No insurance provider has inspection rights in respect of the crypto assets held in storage.”
In addition, as requested by the Staff, the material terms of the third-party custody arrangements are described below. As discussed in the Company’s response to Comment 20, we do not believe these are material contracts required to be filed pursuant to Item 601(b)(10)(ii) of Regulation S-K.
Under the BitGo Custody Agreement, BitGo, at Bakkt Crypto’s direction, establishes and maintains wallets for the storage of crypto assets, including cold wallets where BitGo holds a majority of the keys and a majority of those keys are stored offline (“Vault”). BitGo serves as custodian of crypto assets stored in these wallets. BitGo is required to use reasonable best efforts to keep all custodial coins received by BitGo in safe custody on behalf of Bakkt Crypto and to keep all keys to the custodial wallet held by BitGo secure and to maintain at least one backup key. BitGo is also required to exercise all reasonable best efforts to prevent unauthorized access to or use of the keys held by BitGo to the custodial wallet. Bakkt Crypto does not have inspection rights under the BitGo Custody Agreement.
Under the Coinbase Custody Agreement, Coinbase Custody provides Bakkt with a segregated custody account controlled and secured by Coinbase Custody to store certain crypto assets supported by Coinbase Custody on Bakkt Crypto’s behalf. Crypto assets in the custodial account are not treated as general assets of Coinbase Custody, and Coinbase Custody is a fiduciary and custodian on Bakkt Crypto’s behalf. Under the Coinbase Custody Agreement, Coinbase Custody securely stores crypto asset private keys in offline storage. Under the Coinbase Custody Agreement, Coinbase Custody has implemented and agrees to maintain a reasonable information security program with policies and procedures reasonably designed to safeguard its electronic systems and Bakkt Crypto’s confidential information. Coinbase Custody is required to keep timely and accurate records as to the deposit, disbursement, investment and reinvestment of crypto assets and maintain accurate books and records of the custody services in accordance with applicable law and its own internal document retention policies. Bakkt Crypto does not have inspection rights under the
Coinbase Custody Agreement.
Under the Fireblocks License Agreement, Fireblocks has granted Bakkt Crypto a non-exclusive, non-sublicensable, non-transferable license to generate wallets through the Fireblocks Vault service. The service allows Bakkt Crypto to access and use crypto asset wallets that store private and public keys, interact with various blockchains and monitor its balances of crypto assets.
Please revise to discuss in greater detail the material terms of Bakkt Marketplace's crypto asset listing policy, as well as the weight ascribed to the various factors considered, such as the Crypto Rating Council scoring system.
disclosure in response to the Staff’s comment. The proposed text is set forth below and included in Annex A under “—Policies and Procedures – Listing-Related Policies.”
“We maintain crypto asset listing policies for each of Bakkt Marketplace (which policy also covers Bakkt Crypto, as its wholly owned subsidiary) and Bakkt Trust (the “Listing Policies”), the purpose of which is to provide a framework for the review and approval of new crypto assets for consumer transactions and custody services, respectively.Read in the reply ↗Rest of the answer
The Listing Policies are based on guidance from the NYDFS and were approved by the NYDFS. Material revisions to the Listing Policies require prior written approval from the NYDFS.
The Listing Policies require the covered entity to undertake and document a risk assessment for each new crypto asset, which considers a number of risks, including legal and regulatory risk, and entails a review of the regulatory status of the crypto asset. Other risks covered by the risk assessment include integrity and legitimacy risk
(i.e., risks associated with the creation, governance, issuance, and design of the crypto asset); reputational risk; liquidity, pricing, and manipulation risk; operational risk; and cyber security risk. The Listing Policies also provide for an evaluation of actual or potential conflicts of interest with respect to the potential listing of a crypto asset, and updates to policies and procedures to ensure that monitoring and control measures are in place to manage money laundering and financial crime risk associated with the crypto asset.
Under the Listing Policies, we utilize the risk assessment to consider various factors when making a decision to approve a new crypto asset for listing, including, among others, the appropriateness of the crypto asset to our business model and client base and whether the crypto asset is supported by other reputable markets or trading venues. In order to assess the regulatory status of a crypto asset, we consider the application of the Howey test, and other factors relevant to the determination of the security status of a crypto asset, and the positions of the SEC as expressed in various crypto-related enforcement actions and lawsuits. We may also solicit the opinion of outside counsel.
The Listing
Policies do not ascribe specific weighting to particular factors or inputs to be considered in connection with the potential listing or delisting of crypto assets.”
We note your proposed disclosure under this risk factor. Please further revise to discuss the IRS’s recent proposed regulations relating to the reporting of crypto asset transactions by brokers.
The Company respectfully acknowledges the Staff’s comment and advises that it intends to supplement its disclosure in this risk factor in future filings with the following language:
“In August 2023, the IRS published proposed regulations on tax reporting requirements for cryptocurrency brokers, which are generally expected to expand the scope of companies that are required to report basis, adjusted basis, gross proceeds and amounts realized from sales of covered crypto assets.”
The amended risk factor will be included in the amendment to the Company’s Form 10-Q for the quarterRead in the reply ↗Rest of the answer
ended
September 30, 2023 that includes the Business Update.
We note your proposed disclosure regarding the Southern District of New York's decision in Ripple Labs, Inc. Please balance your disclosure by addressing the Southern District of New York's decision in Terraform Labs.
The Company respectfully acknowledges the Staff’s comment and advises that it intends to supplement its proposed disclosure in future filings with the following language:
“On July 31, 2023, a different court in the Southern District of New York held that the SEC had asserted a plausible claim that certain inter-related crypto-assets offered by Terraform Labs qualified as investment contracts.” Read in the reply ↗
We note your proposed disclosure on page 17 that you "could be subject to judicial or administrative sanctions…for acting as a broker, dealer, or national securities exchange without appropriate registration." Please revise to also address acting as a clearing agency without appropriate registration.
The Company respectfully acknowledges the Staff’s comment. As a consequence of the manner in which Section 3(a)(23)(A) of the Exchange Act defines “clearing agency,” and the manner in which the Company’s platforms operate, the Company does not believe that any of its subsidiaries, including Bakkt Crypto, could qualify as a clearing agency requiring registration under the Exchange Act.
In this regard, and in connection with the disclosure the Company has proposed to include in response to the Staff’s comments, the Company notes that Section 3(a)(23)(B) (iii) of the Exchange Act expresslyRead in the reply ↗Rest of the answer
excludes from the definition of “clearing agency” a broker or dealer to the extent deemed to be a clearing agency “solely by reason of functions performed by such institution as part of customary . . . . brokerage [or] dealing . . . . activities.”
We trust that you find these responses helpful in your evaluation of the Registration Statements. Please do not hesitate to contact us should you require further information.
We note your response to comment 1 that you plan to provide revised disclosure in response to our comments in an amendment to the Company’s recently filed Form 10-Q for the quarter ended September 30, 2023 prior to the effectiveness. Please supplementally provide us with proposed draft pages to an amendment to the Form 10-Q.Rest of the question
Please also revise to include a recent developments section in your prospectus summary to disclose the Apex Acquisition and related material risks.
The Company respectfully acknowledges the Staff’s comment and advises the Staff that proposed draft pages of the amendment to the Company’s Form 10-Q for the quarter ended September 30, 2023 are attached hereto as Annex A, and the updated prospectus summary to Registration Statement with File No. 333-271362, which will be conformed across all the Registration Statements, is attached hereto as Annex B. Read in the reply ↗
We note your response and proposed disclosure to comment 2 that, "We generally do not engage in any direct-to-consumer marketing for the acquisition or engagement of end consumers..." Please delete “generally” from the beginning of this sentence or disclose any exceptions.
The Company respectfully acknowledges the Staff’s comment and advises that it has revised the quoted statement to remove the word “generally,” as reflected on page 26 of Annex A. Read in the reply ↗
We note your response and proposed disclosure to comment 6 that your insurance policy with respect to crypto assets "contains customary exclusions and limitations of coverage as per industry standards.” Please expand your disclosure to briefly describe such customary exclusions and limitations of coverage and provide examples, as appropriate.
The Company respectfully acknowledges the Staff’s comment and advises that it maintains $230 million of insurance coverage, which includes $200 million of cold storage coverage and $30 million of hot storage coverage. The $30 million of hot storage coverage is in excess of a $10 million loss retention. There is no retention applicable to the $200 million of cold storage coverage. All supporting insurers maintain a minimum A.M. Best rating of “A”. The
$30 million of hot storage coverage has a three-year term, expiring October 2024.Read in the reply ↗Rest of the answer
The $200 million of cold storage coverage has a one-year term, expiring November 2024.
The AXA XL-led $30 million of hot storage coverage policy is non-cancellable, other than due to non-payment of premium. The Lloyds-led $200 million of cold storage coverage policy may only be cancelled upon: 1) the Company’s election to cancel, 2) the insurer’s election to cancel, on 90 days’ notice to the Company, 3) the Company’s change in ownership or control or seizure by a receiver, trustee, or government entity, 4) voluntary liquidation of the Company, 5) exhaustion of the coverage limit, or 6) non-payment of premium. The AXA XL-led $30 million of hot storage coverage policy has no automatic or guaranteed renewal provisions, although we expect to renew such coverage prior to its expiration. The Lloyds-led $200 million of cold storage policy has a one-year guaranteed renewal provision. There are no carrier inspection rights, but an affirmative proof of loss statement would need to be completed in the event of a loss.
The insurance policies include exclusions aimed at delineating and clarifying the scope of coverage. Examples of key customary exclusions include exclusions for losses arising from force majeure events or theft, fraud, or dishonest acts committed by any principal shareholders, partners or directors of the insured entity. Losses stemming from the network failure of a digital asset cryptographic protocol, as well as those associated with illegal activities such as money laundering, are expressly excluded. We have updated our proposed disclosure in Annex A under “Item 5—Other
Information—Insurance Matters” to reflect the foregoing.
We note your proposed disclosure in response to comment 7 that all crypto assets that you make available to Customers are transferable to external wallets, with the exception of: (i) Ethereum Classic (ETC) and Dogecoin (DOGE), which are under development and are expected to be supported for transfers in the first quarter of 2024, and (ii) crypto assets made available to Customers residing in the State of New York.Rest of the question
Please provide us your legal analysis as to why such instruments included in your list of exceptions and traded through your platform are not derivatives, such as swaps. In this regard, it appears that such trading may be synthetic with Customers depositing cash, trading solely within your closed platform, and being prohibited from withdrawing crypto assets from the platform. In responding to this comment, please address the rights and title a Customer has with respect to such crypto assets traded through your platform.
The Company respectfully acknowledges the Staff’s comment and advises that the Bakkt Crypto (as defined in Annex A) platform has been upgraded to support the customer (as defined in Annex A) transfer of ETC and DOGE to external wallets as of January 19, 2024. This transfer capability will not be available to customers residing in the State of New York until approved by the New York Department of
Financial Services, which we plan to seek in 2024.Read in the reply ↗Rest of the answer
The Company has updated its proposed disclosure accordingly in Annex A under “ Item 5—Other Information—Crypto Assets and Services Offered by Bakkt—External Transfer of
Crypto Assets (through Bakkt Crypto)”.
With respect to the Staff’s request for the Company’s analysis as to why certain crypto assets traded on the Bakkt Crypto platform are not derivatives, such as swaps, all crypto assets held by a customer in its Bakkt Crypto wallet are custodial assets held by Bakkt Crypto for the customer’s benefit. Pursuant to applicable user agreements, customers are able to purchase crypto assets from, or sell crypto assets to, Bakkt Crypto by means of their self-directed Bakkt Crypto accounts. Bakkt Crypto is obligated under the user agreements to keep records reflecting the ownership of crypto assets purchased by customers and stored in Bakkt Crypto-controlled wallets, which Bakkt Crypto maintains through its internal ledgers, and to make ownership information accessible to customers through their accounts. Bakkt Crypto does not purport to hold any property interest in crypto assets held on behalf of customers. Bakkt Crypto does not sell, transfer, assign, lend, hypothecate, pledge, or otherwise use or encumber crypto assets held on behalf of customers. Customers have full authority over the disposition and use of all crypto assets held on their behalf, and they both enjoy all of the benefits, and are subject to all of the burdens, of the ownership of those crypto assets. In sum, Bakkt Crypto’s customers, not
Bakkt Crypto, fully bear the economic risks, and stand fully to gain from the economic benefits, of the ownership of the crypto assets they hold on the Bakkt Crypto platform.
The absence of the particular external withdrawal capability described in the Company’s proposed disclosure does not convert customers’ current legal and beneficial ownership of crypto assets into a swap, or any other species of derivative or synthetic exposure. The crypto assets available on the Bakkt Crypto platform are tradable by customers in all applicable jurisdictions at best available prices as sourced from Bakkt Crypto’s liquidity providers. They bear none of the characteristics of swaps, nor of any other species of derivative, such as futures contracts. No portion of the six-pronged definition of “swap” set out in the Commodity Exchange Act1 could reasonably be read to extend to these holdings. Crypto assets held on the Bakkt Crypto Platform are not put, call, cap, floor, or collar options based on the value of financial or economic interests or property;2 to the contrary, they confer no option-like rights and entail no option-like obligations of any kind. The holdings provide for no purchase, sale, payment, or delivery dependent on the occurrence or non-occurrence of an event or contingency.3 They do not comprise transactions for the exchange of payments based on the value of crypto assets, but rather entail the conveyance of “a current . . . . direct . . . . ownership interest in” those assets.4 These crypto asset holdings are not known to the trade as swaps,5 nor are they security-based swap agreements,6 nor are they a “combination or permutation” of any of these categories of swap.7
In addition, even if the Company were the owner of the underlying crypto assets (which, as noted above, is not the case), that fact, in and of itself, would not be sufficient for Bakkt Crypto’s platform to involve trading in swaps. By way of analogy, when the Commission and the Commodity Futures Trading Commission have previously analyzed the circumstances under which a participation in an asset falls outside the definitions of “swap” and “security-based swap,” they looked beyond title or beneficial ownership.8 The relevant guidance, which was analyzing loan participations,9 identified four characteristics of such participations that are not considered to fall under the swap or security-based swap definitions: (i) the grantor of the loan participation is a lender under or participant in the underlying loan; (ii) the aggregate participation in the underlying loan does not exceed the loan’s principal amount, and the grantor of the participation does not convey a greater interest to the participant than the grantor itself holds; (iii) the purchase price for the loan participation is paid in full at time of acquisition; and (iv) the loan participation provides the participant all of the economic benefit and risk of the whole or part of the loan underlying the participation.10 Reasoning by analogy, all four of these characteristics would be present here: (i) Bakkt Crypto has legal title to the crypto asset for the benefit of the customer; (ii) the aggregate amount of crypto assets Bakkt Crypto purports to hold for its customers does not exceed the amount of such assets actually held by Bakkt Crypto, and Bakkt Crypto does not convey a greater interest in the assets than it holds itself; (iii) each customer makes payment for the crypto asset in full at the time its order is filled; and (iv) the customer receives all of the economic benefit and risk of the underlying crypto asset.
See 7 U.S.C. § 1a(47).
7 U.S.C. § 1a(47)(A)(i).
7 U.S.C. § 1a(47)(A)(ii).
7 U.S.C. § 1a(47)(A)(iii).
7 U.S.C. § 1a(47)(A)(iv).
7 U.S.C. § 1a(47)(A)(v).
7 U.S.C. § 1a(47)(A)(vi).
See Final Rule, Further Definition of ‘‘Swap,’’ ‘‘Security-Based
Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 Fed. Reg. 48251 (Aug. 13, 2012).
Id. Although the guidance pertained to loans, no aspects of the relevant statutes would justify a different interpretation for other types of assets.
Id.
We note that your proposed disclosure in Annex A defines the term “Client” to include “businesses with whom [you] contract to provide services to Customers on our platforms, and includes financial institutions, hedge funds, merchants, retailers, and other businesses.” Please expand this definition to clarify that the term “Client” also includes the third-party partners to which you refer in your disclosures, as youRest of the question
state in response to comment 8. In addition, please tell us how you considered including risk factor disclosure regarding the enforceability of the agreements with Clients that are not in writing and describing any material impacts to your business.
The Company respectfully acknowledges the Staff’s comment and advises that it has revised the disclosure to clarify that the term
“Client” also includes the third-party partners to which it refers, as reflected on page 14 of Annex A.
The Company does not have any agreements with clients that are not in writing.Read in the reply ↗Rest of the answer
Relatedly, as disclosed in Annex A to our response dated August 2, 2023, to the Staff comment letters dated June 12, 2023, under the risk factor titled “If we are unable to attract, retain or grow our relationships with our existing clients, our business, financial condition, results of operations and future prospects would be materially and adversely affected. Moreover, sales efforts to large clients involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations,” the Company advises that some of its written agreements with clients are agreements to collaborate and determine potential products and services to bring to market. These written agreements provide that any such products and services would themselves be the subject of future definitive written agreements between the Company and the relevant client. We have updated this risk factor on pages 5-6 of Annex A to reflect this.
We note your response to comment 8 and your proposed disclosure in Annex A that you are developing functionalities to transfer supported crypto assets between registered Customers of the Company. Please describe in greater detail the functionalities you are developing, including whether they are intended to create a payment platform or facilitate the matching of transactions between Customers.Rest of the question
Further, with respect to your proposed disclosure in Annex A that Customers may purchase crypto assets through the Customer’s “Banking as a Service” provider account, please clarify what is meant by this term, and which parties maintain relationships with the bank that is providing the service. Please also revise to clarify that the company is not regulated as a bank and does not have deposit insurance for its customer accounts.
respectfully acknowledges the Staff’s comment and advises that the Company has indefinitely postponed further development and rollout of the capability for registered customers to transfer crypto assets to and from other registered customers within our platform. We have updated our disclosure in Annex A under “Item 5—Other Information—Crypto Assets and Services Offered by Bakkt—Other Potential Services” to reflect this.
The reference to a customer’s “Banking as a Service” provider account refers to instances where a client, through its banking relationships, offers customers the ability toRead in the reply ↗Rest of the answer
withdraw fiat currency from, or transfer or deposit fiat currency into, the customer’s Banking as a Service account with that client. In those instances, those customers would utilize their Banking as a Service account to purchase supported crypto assets from Bakkt Crypto, as depicted in Figure 2 of Annex A, and to deposit the proceeds of sales of supported crypto assets to Bakkt Crypto, as depicted in
Figure 6 of Annex A. Our client, not the Company, maintains the relationship with the Banking as a Service provider and the Company is not itself regulated as a bank. We have revised our disclosure on page 19 of Annex A to clarify this.
We note your response to comment 9 that your definition of "crypto" asset includes the terms “virtual currencies,” “coins,” and “tokens.” Please explain their meanings so that a reader without specialized industry knowledge can understand them.
The Company respectfully acknowledges the Staff’s comment and advises that for purposes of its public disclosures, the Company regards “crypto assets”, “virtual currency”, “coins” and “tokens” to be interchangeable. We note that the State of
New York uses the term “virtual currency,” and therefore, in contexts that refer directly to New York law or regulation, the disclosure uses that term. We have revised our disclosure on page 14 of Annex A to clarify this. Read in the reply ↗
The discussion under “Crypto Asset Trading” on pages 5 - 9 of Annex A focuses primarily on the Customer side of a transaction. Please also provide additional detail on the execution of transactions with liquidity providers (and the inter-relationship between such transactions and the transactions with Customers).Rest of the question
For example, and without limitation, please discuss: • How many liquidity providers do you route to; • How do you determine which liquidity provider to route to for a particular order; • The material terms of your relationships with liquidity providers; • Whether the execution of a Customer’s order contingent on the execution of an offsetting order with a liquidity provider, or alternatively, whether Bakkt Crypto executes a Customer’s order and subsequently execute an offsetting order with a liquidity provider. If the latter, please explain why the use of the term “riskless principal” is appropriate in this context; • Whether Bakkt Crypto is required to pre-fund any transactions with liquidity providers and, if so, does Bakkt Crypto use its own cash or crypto assets to do so; and • Any liquidity risk to the company associated with these arrangements with liquidity providers.
respectfully acknowledges the Staff’s comment and advises that Bakkt Crypto currently has relationships with seven liquidity providers, with at least three providers servicing each supported crypto asset in order to provide consistent liquidity. Bakkt Crypto utilizes a proprietary, internal system to aggregate quotes from its liquidity providers by asset, side, price and size, which Bakkt Crypto uses to determine what quotes to provide, as principal, to its clients for display to customers.
To fill customer orders as riskless principal, the Bakkt Crypto platform compares customer orders toRead in the reply ↗Rest of the answer
the aggregated best bid or offer prices quoted by Bakkt Crypto’s liquidity providers. If a customer order is marketable, Bakkt Crypto routes an offsetting order for its own account, on a one-to-one basis, to the liquidity provider quoting the best price. Customers may place market orders or limit orders on the Bakkt Crypto platform. Market orders are, by definition, marketable when they are placed. As such, when a customer market order is received, Bakkt Crypto will offset that order by routing an order for its own account to the relevant liquidity provider on an “immediate or cancel” basis. Limit orders may be marketable when they are placed, or may become marketable when the aggregated market price, as determined by Bakkt Crypto’s proprietary internal system, aligns with the limit price selected by the customer. The Bakkt Crypto platform holds customer market orders that are not marketable at the time they are placed on Bakkt Crypto’s internal order book and evaluates such orders for marketability on an ongoing basis as liquidity providers change their best bid or offer prices. Should a customer limit order become marketable as the aggregated best price changes, the Bakkt Crypto platform would, at that point, place an offsetting order for its own account with a liquidity provider.
Upon receipt of a fill confirmation from the liquidity provider servicing one of Bakkt Crypto’s offsetting orders, Bakkt Crypto will fill the corresponding customer transaction out of its own account as riskless principal. In other words, the Bakkt Crypto platform is structured to execute the offsetting order for Bakkt Crypto’s own account prior to executing the corresponding customer order.
Bakkt Crypto has written agreements with all of its liquidity providers. Under these agreements, Bakkt Crypto is granted access to proprietary trading platforms of the liquidity providers for the purpose of placing orders for purchase or sale of crypto assets. Bakkt Crypto acts as principal in such transactions with liquidity providers. Orders cannot be withdrawn, cancelled or amended. After the liquidity provider accepts the order, it issues a transaction confirmation. The parties then are obligated to deliver fiat currency and crypto assets according to the terms of the transaction. The agreements contain customary representations and warranties and confidentiality, limitation of liability and indemnification provisions. The agreements do not have a set term and generally may be cancelled by either party for convenience on prior written notice of 30 to 60 days, with some agreements providing for no such notice obligations or a notice obligation of seven days.
Settlement is conducted on a net basis on the blockchain supporting the crypto asset. Bakkt Crypto is not required to pre-fund any transactions with liquidity providers. Instead, Bakkt Crypto settles with its liquidity providers on a daily or other post-trade, non-real-time basis, at which time, fiat currency and crypto assets are exchanged to settle trading obligations from the previous period. In periods of heavy trading volumes, Bakkt Crypto and the liquidity providers may agree to perform more frequent settlements in order to decrease the exposure of unsettled transactions. We have revised our disclosure on page 22 of Annex A to provide this additional detail.
We note your response to comment 10 that you do not have any updates at this time on your plans to offer non-fungible tokens or NFTs and your proposed disclosure that you are evaluating the opportunity to purchase and sell NFTs.Rest of the question
To the extent that you may offer NFTs to your Customers but do not have a timeline related thereto, please disclose the factors you will consider when determining whether and when to offer NFTs to your Customers. In addition, please identify the local Client with which you have a partnership and customers with in Spain, Mexico, Argentina, and soon Brazil.
The Company respectfully acknowledges the Staff’s comment and advises that the Company has postponed further development and rollout of NFTs indefinitely.
Factors relevant to our determination include, among other things, revenue expectations and compliance with applicable laws. We have updated our disclosure in Annex A under “Item 5—Other Information—Crypto Assets and
Services Offered by Bakkt—Other Potential Services” to reflect this.
The Company is currently live in Spain, Mexico, Argentina, and Brazil with Hapi Crypto. Read in the reply ↗
We note your proposed disclosure in Annex A that Bakkt Trust and Bakkt Crypto hold proprietary assets in the same wallets that hold Customer assets. Please expand your risk factor disclosure to discuss related risks. Please also expand your risk factor disclosure to discuss the potential impact of the insolvency of one of your third-party custodians.
respectfully acknowledges the Staff’s comment and advises that it intends to supplement its disclosure in response to the Staff’s comments. The proposed text is set forth below and included on pages
7-8 of Annex A under the risk factor captioned “Our failure to safeguard and manage our customers’ crypto could adversely impact our business, operating results, and financial condition.”
The Company also advises the Staff that, as of the date of this submission, the value of Bakkt Crypto assets held in omnibus wallet accounts for less than one tenth of one percent of the value of the balance ofRead in the reply ↗Rest of the answer
crypto assets held on behalf of Bakkt
Crypto customers.
“We regard the crypto assets that we hold in custody for customers as the property of those customers, who benefit from the rewards and bear the risks associated with their ownership, and we believe that customer crypto assets, consistent with the nature and terms of the services we offer and applicable law, would not be made available to satisfy the claims of our general creditors in the event of our bankruptcy. In addition, since the acquisition of Bakkt Crypto, we have utilized the services of third-party custodians to hold crypto assets in custody for the benefit of Bakkt Crypto customers. These third-party custodians maintain their own bankruptcy protection procedures and contractual protections designed with the goal that the crypto assets held in custody by these third-party custodians would not be made available to satisfy the claims of such custodian’s general creditors in the event of bankruptcy. However, insolvency law is not fully developed with respect to the holding of crypto assets in custodial arrangements and continues to develop. As a result, there is a risk that crypto assets held in custody could be considered to be the property of a bankruptcy estate in the event of a bankruptcy, and that the crypto assets held in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as general unsecured creditors. This prospect may result in customers finding our custodial services more risky and less attractive.
Both Bakkt Trust and Bakkt Crypto use omnibus wallets to hold crypto assets belonging to the
Company as well as crypto assets held for the benefit of and on behalf of customers. The balances of Bakkt Crypto-owned assets in such wallets are de minimis and are maintained solely to facilitate customer transactions, such as by funding the payment of transfer fees and addressing rounding conventions and trade errors. Although the Company maintains detailed internal ledgers recording the ownership of crypto assets held in Company-controlled omnibus wallets, the use of omnibus wallets could complicate the disposition or treatment of customer crypto assets in the event of our bankruptcy, including by increasing the risk that crypto assets held in the omnibus wallets are considered to be the property of our bankruptcy estate.”
We note your proposed disclosure in response to comment 22. Please expand your disclosure in the subsection headed "Custody Services for the Crypto Assets Supported for Trading" to include the information you provide in your response regarding the material terms of your third-party custody arrangements.Rest of the question
In addition, your response notes that “[a]ssets stored by Coinbase Custody and Bitgo are held 100% in segregated cold storage.” However, you subsequently state that BitGo, at Bakkt Crypto’s direction, establishes and maintains wallets for the storage of crypto assets, including cold wallets where BitGo holds a majority of the keys and a majority of those are stored offline” (emphasis added). Please reconcile these statements. Please also clarify what you mean by the term “segregated” cold storage in the first sentence (as opposed to unsegregated cold storage). In addition, in the second sentence please explain why only a majority of keys held by BitGo in cold wallets are stored offline. If some portion of the keys held in cold wallets are stored online, it is unclear why those wallets would be considered cold wallets. Please also revise to describe the term and termination provisions of your custody agreements.
respectfully acknowledges the Staff’s comment and advises that it has expanded the subject disclosure to include the material terms of the custody agreements in the subsection headed “ —Custody Services for the Crypto Assets
Supported for Trading” of Annex A.
All of the keys for the cold wallets BitGo and Coinbase have established to hold Bakkt Crypto assets are held by BitGo or Coinbase, as applicable, and stored in cold storage.
“Segregated” means that Bakkt Crypto customers assets are held in unique addresses on the respective blockchains and do not include assets of other clients ofRead in the reply ↗Rest of the answer
BitGo or Coinbase, or of BitGo or Coinbase themselves.
has revised the subject disclosure to include a description of the term and terminations provisions of the custody agreements, as reflected on page 23 of Annex A.
Please tell us how you considered revising your disclosure in this risk factor to address the Digital Financial Assets Law recently enacted in California and its potential impact on the Company.
The Company respectfully acknowledges the Staff’s comment and advises that it intends to supplement its disclosure in response to the Staff’s comments. The proposed text is set forth below and included on pages 9-10 of Annex A under the risk factor captioned “Regulatory regimes governing blockchain technologies and crypto are evolving and uncertain, and new legislation, regulations, guidance and enforcement actions have in the past required, and may in the future require, us to alter our business practices.”
“In October 2023, the governor of California signed into law the Digital FinancialRead in the reply ↗Rest of the answer
Assets Law (“DFAL”), which establishes a required licensing framework administered by the California Department of Financial Protection and Innovation (“DFPI”) for entities engaged in digital financial asset business activity in the state of California. The Company expects that its business will require licensure under the DFAL and will therefore take steps to obtain necessary licenses prior to the enactment’s effective date of July 1, 2025. The Company notes that the DFAL provides that the DFPI may issue a conditional license to companies, such as our subsidiaries, that maintain licenses to conduct virtual currency business activity in New York or hold a charter as a New York limited purpose trust company with approval to conduct a virtual currency business under New York law. The Company will continue to monitor and review guidance from the DFPI clarifying the enactment’s scope and interpretation.”
We note your response to comment 26. To the extent that you do not believe it would be appropriate to reference the term "clearing agency" in your disclosure, please provide your analysis as to why you believe an entity that is not registered as a broker-dealer may be eligible to rely on the exclusion from the definition of “clearing agency” for a broker or dealer engaged in customary brokerage or dealingRest of the question
activities, and why you believe the Company would be considered to be engaged in customary brokerage or dealing activities.
the Staff’s comment. The cited exclusion from the Exchange Act’s definition of “clearing agency” is not limited on its face to registered broker-dealers, but rather extends to any “broker” or any “dealer.” The
Exchange Act defines “broker” and “dealer” broadly11 and captures the more limited subset of entities that have registered with the Commission as broker dealers under the separate defined term “registered broker or dealer.”12 Where Congress intended to limit the import of particular provisions of the Exchange Act to registered broker-dealers only, the statutory text expressly reflectsRead in the reply ↗Rest of the answer
as much.13 An entity that meets the Exchange Act definition of “broker” or “dealer” is therefore eligible to rely on the
Section 3(a)(23)(B)(iii) exclusion even if such entity would not qualify as a “registered broker or dealer.”
See Exchange Act § 3(a)(4) (defining “broker” as “any person engaged in the business of effecting transactions in securities for the account of others”); id. § 3(a)(5) (defining “dealer” as “any person engaged in the business of buying and selling securities . . . . for such person’s own account through a broker or otherwise”).
See id. § 3(a)(48).
e.g. id. § 3(a)(3)(A) (defining the term “member” with respect to a national securities exchange to include, inter alia, any “registered broker or dealer which agrees to be regulated by such exchange and with respect to which the exchange undertakes to enforce compliance with the provisions of this title, the rules and regulations thereunder, and its own rules”) (emphasis added); id. § 3(a)(3)(B) (defining the term “member” with respect to a registered securities association to include any “broker or dealer who agrees to be regulated by such association and with respect to whom the association undertakes to enforce compliance with the provisions of this title, the rules and regulations thereunder, and its own rules”) (emphasis added).
With respect to the characterization of the Company’s activities, the proposed Business Update included with the Company’s November 21, 2023 letter submission explained that the Bakkt Crypto platform operates as a riskless principal, offsetting each customer order it fills by routing a corresponding order to a liquidity provider on a one-to-one basis.14 Commission guidance has consistently treated and addressed such trading activity as customary brokerage or dealing activity to the extent it involves securities. For instance, in a 2001 rulemaking release regarding the scope and interpretation of certain bank-related exemptions from the Exchange Act’s definitions of “broker” and “dealer,” the Commission explained that, “under the securities laws, ‘riskless’ principal transactions involve dealer activity because entities that engage in ‘riskless’ principal transactions as a matter of course would be involved in the business of buying and selling securities for their own accounts, even if the risk associated with the transactions is minimal or non-existent.”15
We trust that you find these responses helpful in your evaluation of the Registration Statements.
We reissue comment 3 of our letter dated June 12, 2023, in part. Please revise to disclose whether and how the recent completion of Ethereum’s transition to Proof-of-Stake consensus has impacted your analysis, if any, of whether a particular crypto asset that you make available on your platform is a “security” within the meaning of Section 2(a)(1) of the Securities Act.
The Company respectfully acknowledges the Staff’s comment and advises that it considered whether a crypto asset uses a proof-of-stake consensus mechanism as part of its review of all crypto assets available on the Bakkt Crypto platform following the close of the Bakkt Crypto acquisition in April 2023.Read in the reply ↗Rest of the answer
In response to the Staff’s comment, the Company proposes to revise the proposed disclosure appearing on page 17 of
Annex A to the Company’s January 19, 2024 letter (such Annex, “Annex A”) to include the emphasized language below:
[… Following the closing of our acquisition of Bakkt Crypto on April 1, 2023, and in light of regulatory developments, we undertook an updated review of all crypto assets then available on the Bakkt Crypto platform and determined that it was appropriate to delist certain additional assets.] “This review took into account a number of factors, including:
(i) scores assigned to each crypto asset based on a rating framework that weighs various factors drawn from SEC and judicial sources; (ii) whether the crypto asset was sold in an initial coin offering; (iii) whether the crypto asset was backed by a single entity; and (iv) whether the crypto asset used “proof of stake” validation.
Our review also accounted for the potential impacts of delisting on our clients and customers.” [We have also directed the delisting of certain crypto assets in response to charges recently filed by the SEC against crypto asset exchanges alleging that those crypto assets are securities. …]
We note your response to comment 13. Please revise your disclosure to identify the risk that you could be subject to judicial or administrative sanctions for acting as a clearing agency without appropriate registration.
The Company respectfully acknowledges the Staff’s comment and advises that it proposes to revise its disclosure in such risk factor, which appears on page 12 of Annex A, in response to the Staff’s comment with the emphasized language below:
[… A determination by the SEC, a foreign regulatory authority, or a court that an asset that we support for trading on our platform constitutes a security may also result in a determination that we should remove such asset from our platform, as well as other assets that have similar characteristics to such asset deemed to be a security.Read in the reply ↗Rest of the answer
In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration.]
“Similarly, the SEC has recently alleged that certain crypto asset exchanges have acted without appropriate registration as clearing agencies. Although our platform functions differently from those alleged to have functioned as unregistered clearing agencies in actions brought by the SEC to date, we could face a similar action if the SEC and its staff take a different position with respect to our activities. An action for failure to register as a broker, dealer, national securities exchange, or clearing agency when such registration was required could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines and disgorgement, criminal liability and reputational harm.” [Customers that traded such supported assets on our platform and suffered trading losses could also seek to rescind a transaction that we facilitated on the basis that it was conducted in violation of applicable law, which could subject us to significant liability. …]
Refer to your proposed disclosures on page 22 of Annex A. At the bottom of page 22, you state that Bakkt Crypto settles with its liquidity providers on a daily or “other post-trade, non-realtime basis...." Please revise to clarify the frequency that, or the circumstances under which, Bakkt Crypto settles with its liquidity providers at a frequency other than daily or intra-day, and discuss any risks associated withRest of the question
settling less frequently than daily.
The Company respectfully acknowledges the Staff’s comment and advises that it proposes to revise the proposed disclosure appearing on page 22 of Annex A to include the emphasized language below:
[Settlement is conducted on a net basis on the blockchain supporting the crypto asset. Bakkt Crypto is not required to pre-fund any transactions with liquidity providers.] Instead, Bakkt Crypto settles with liquidity providers on a daily basis; however, in instances where a liquidity provider’s settlement balance is less than $30,000 for a given token, or $50,000 across all tokens, Bakkt Crypto willRead in the reply ↗Rest of the answer
settle with those liquidity providers on the last business day of the applicable month, or when the settlement balance exceeds those levels, if sooner. At settlement, fiat currency and crypto assets are exchanged to settle trading obligations from the previous period. [In periods of heavy trading volumes, Bakkt Crypto and the liquidity providers may agree to perform more frequent settlements in order to decrease the exposure of unsettled transactions.] further advises that, due to the de minimis nature of Bakkt Crypto’s settlements occurring on a less-frequent-than-daily basis, the Company does not consider the risks associated with such settlements to be material.
Your response to comment 11 indicates, among others, that all of the keys for the cold wallets BitGo has established to hold Bakkt Crypto assets are held by BitGo and stored in cold storage. However, we also note your proposed disclosure on page 23 of Annex A that "[u]nder the BitGo Custody Agreement, BitGo, at Bakkt Crypto’s direction, establishes and maintains wallets for the storage of crypto assets, includingRest of the question
cold wallets where BitGo holds a majority of the keys and a majority of those keys are stored offline..." (emphasis added). Please explain this apparent inconsistency and revise your disclosure as necessary.
The Company respectfully acknowledges the Staff’s comment and advises that it proposes to revise the proposed disclosure appearing on page
23 of Annex A to include the emphasized language below.
[Under the BitGo Custody Agreement, BitGo, at Bakkt Crypto’s direction, establishes and maintains wallets for the storage of crypto assets, including cold wallets where BitGo holds] all of the keys, and all of those keys [are stored offline (“Vault”).] Read in the reply ↗
Please address the following with respect to the going concern disclosure in your amended Form 10-Q for the quarterly period ended September 30, 2023: • Revise your Prospectus Summary to provide disclosure about the facts that raise substantial doubt about your ability to continue as a going concern.Rest of the question
Your disclosure should include a discussion of:o the principal conditions or events that raise substantial doubt about your ability to continue as a going concern; o your evaluation of the significance of those conditions or events in relation to your ability to meet your obligations; and o management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about your ability to continue as a going concern. • As part of this disclosure, please also include a discussion of your current liquidity position, the sources of that liquidity (e.g., cash, short-term investments, etc.), and the expected uses and timing of uses of that liquidity. • Regarding the going concern risk factor disclosure in your amended Form 10-Q, please tell us whether or not you considered revisions or updates to any other disclosures, including the subsequent events footnote to your interim financial statements, related to facts that raise substantial doubt about your ability to continue as a going concern.
The Company respectfully advises the Staff that, promptly after the submission of this letter, it will file Amendment No. 3 to its
Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Quarterly Report”), which would be substantively unchanged from Amendment No. 2, except that it would:
(i)
Include the Company’s interim financial statements as of and for the period ended September 30, 2023 under Part 1, Item 1.Read in the reply ↗Rest of the answer
These financial statements would be unchanged from those included in the original filing of the Quarterly Report, except for an amended and restated Note 20 thereto providing an update on the substantial doubt regarding the
Company’s ability to continue as a going concern, as a result of developments since the filing of Amendment No. 2 to the Quarterly Report;
(ii) update the risk factor in Part II, Item 1A “Risk Factors” that was filed with Amendments No. 1 and 2 to the Quarterly Report related to our ability to continue as a going concern; and
(iii) update the explanatory note accordingly.
Proposed draft pages of Amendment No. 3 to the Company’s Form 10-Q showing the amended and restated subsequent event footnote, such proposed updated risk factor and the updated explanatory note are attached hereto as Annex A.
The Company also respectfully advises the Staff that, promptly after the submission of this letter, it will file amendments to each of the
Registration Statements that would update each applicable prospectus summary therein to address the disclosure requested in the first and second bullets in this Comment No. 1. Proposed draft pages of the prospectus summary to Registration
Statement with File No. 333-271362, which will be conformed across all the Registration Statements, are attached hereto as Annex B.
Further, the Company respectfully acknowledges the Staff’s comment that the Company consider revisions or updates to any other disclosures in the Quarterly Report, including the subsequent events footnote to its interim financial statements, related to facts that raise substantial doubt about its ability to continue as a going concern. As noted above, the Company intends to file Amendment No. 3 to the Quarterly Report to add the disclosure shown on Annex A, which includes an amended and restated subsequent events footnote (restated Note 20) to the Company’s interim financial statements. However, the Company does not believe that disclosure updates other than those to be disclosed in such Amendment No. 3 are appropriate, as such disclosure only speaks as of the original filing date of the
Quarterly Report and, therefore, remains unchanged by the post-initial filing developments regarding the Company’s ability to continue as a going concern.
While we do not have any further comments at this time regarding your disclosure or the responses that you have provided to our prior comments, please confirm your understanding that our decision not to issue additional comments should not be interpreted to mean that we either agree or disagree with your disclosure or responses.Rest of the question
Please also confirm your understanding that, with respect to your business operations, and in particular the Bakkt Crypto and Bakkt Marketplace platforms and the crypto assets you make available for trading on those platforms, our decision not to issue additional comments does not mean that we either agree or disagree with any conclusions you have made, positions you have taken or practices you have engaged in or may engage in.
The Company respectfully acknowledges the Staff’s comment and confirms and acknowledges that the Staff’s decision not to issue additional comments should not be interpreted to mean that the Staff either agrees or disagrees with the Company’s disclosure or responses. Further, the Company acknowledges and confirms that, with respect to the Company’s business operations, and in particular the Bakkt Crypto and Bakkt Marketplace platforms and the crypto assets the Company makes available for trading on those platforms, the Staff’s decision not to issue additional comments does not mean that theRead in the reply ↗Rest of the answer
Staff either agrees or disagrees with any conclusions the Company has made, positions the Company has taken, or practices the Company has engaged in or may engage in.
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