Bakkt Holdings: Navigating Litigation and Leveraging Asymmetric Risk for Contrarian Gains

The crypto ecosystem has long been a high-risk, high-reward arena, and Bakkt Holdings (NYSE: BKKT) now sits at the center of a volatile opportunity tied to its litigation saga. For event-driven investors, the company’s recent struggles—rooted in overreliance on a single client and a class action lawsuit—present a rare asymmetric risk-reward scenario. While the stock’s March 18, 2025, 27.3% crash (from $12.83 to $9.33) underscores near-term volatility, the June 2, 2025, lead plaintiff deadline for the securities case could catalyze a re-rating if plaintiffs fail to secure class certification or settle favorably. Here’s why contrarian investors might want to consider Bakkt now, alongside the risks that demand caution.

The Catalyst: A 27% Crash and the Webull Dependency

Bakkt’s March 18 plunge was no ordinary dip. The trigger? A bombshell disclosure that its crypto services revenue—98% of total revenue—depended on a single client, Webull Pay LLC, which accounted for 74% of crypto revenue. When Webull announced its contract termination (effective June 2025), the market priced in a projected 73% revenue drop, sending shares into freefall. For event-driven investors, this collapse represents a potential buying opportunity, especially if the company can pivot to new clients or the lawsuit’s outcome proves less dire than feared.

The Asymmetric Opportunity: Short-Term Pain, Long-Term Gain?

The lawsuit’s June 2 deadline is pivotal. If a lead plaintiff emerges with a strong financial case, Bakkt faces potential liability for misleading investors about its revenue stability. However, the risk is not one-sided. Should the case stall due to weak plaintiff claims or get settled for less than feared, the stock could rebound as the Webull dependency narrative fades. The asymmetry lies in the potential upside versus downside:

• Upside: A favorable resolution or settlement below expectations, coupled with Bakkt’s ability to diversify revenue, could see shares rebound toward pre-March levels ($12.83) or higher.
• Downside: A large settlement or loss of additional clients (e.g., Bank of America’s loyalty contract termination) might drag the stock lower, but the current price already reflects much of this risk.

Risks That Demand Vigilance

1. Litigation Uncertainty: The class action’s outcome is binary. A large settlement (e.g., a percentage of Bakkt’s market cap) could cripple liquidity, especially if the company lacks reserves.
2. Revenue Erosion: Losing Webull’s 74% contribution leaves Bakkt scrambling to replace revenue. Its loyalty services segment—though smaller—also faces headwinds from Bank of America’s exit.
3. Regulatory Scrutiny: Crypto firms face heightened oversight. If Bakkt’s disclosures are found deficient, further probes or fines could amplify losses.
4. Market Sentiment: The crypto sector’s volatility means Bakkt’s stock could remain sensitive to broader declines in digital asset prices or investor confidence.

Contrarian Play: Timing the Litigation Timeline

The June 2 deadline creates a “decision point” for investors. Before then, the stock may remain range-bound as plaintiffs vie for lead plaintiff status. Post-June 2, clarity could emerge:

• Scenario 1 (Optimistic): A lead plaintiff is chosen, but Bakkt negotiates a settlement at a fraction of feared losses. Revenue diversification efforts (e.g., partnerships like its Russia-focused DTR stablecoin project) gain traction, driving a rebound.
• Scenario 2 (Pessimistic): A large settlement or adverse ruling forces a stock reset. Investors who bought at $9.33 may face further losses.

For those willing to bet on Scenario 1, a cautious entry—such as dollar-cost averaging into the stock through June—could mitigate risk. A stop-loss near the March lows ($9) or a trailing stop tied to a 20% decline from purchase could protect capital.

Final Considerations

Bakkt’s valuation is now at a multi-year low, trading at roughly 4.5x trailing revenue (down from 6.2x pre-March). While revenue multiples in crypto infrastructure are inherently speculative, the current discount reflects litigation and client risks. If the company can stabilize its balance sheet and secure new partnerships, the stock’s intrinsic value could exceed its current price.

Conclusion: A High-Risk, Event-Driven Bet

Bakkt is not for the faint-hearted. Its survival hinges on navigating litigation, replacing lost revenue, and thriving in a regulatory minefield. Yet for investors with a high risk tolerance and a long-term horizon, the June 2 deadline creates a window to position for a potential recovery—if the company can prove its value beyond its Webull dependency. Monitor the lawsuit’s progress, Bakkt’s new client wins, and broader crypto market trends. This is a play for the brave—and those who dare to bet on a comeback.

Proceed with caution, and remember: even asymmetric opportunities require a strict risk management plan.