Bakkt Holdings (NYSE:BKKT) stock has had a mystifying run over the past six months or so. The company launched via a special purpose acquisition company (SPAC) and almost immediately skyrocketed from $10 to $40.

These gains would not last, however. BKKT stock hit $40 in October. By December, it was back down to $10. Now it’s fallen another 50% and is struggling to hold the $5 mark. What caused traders to become so fascinated with Bakkt in the first place? And was the whole bullish narrative wrong, or is there still a cause for optimism with this fallen star of a stock?

Bakkt’s Vision

Bakkt’s mission is to be a digital bridge connecting all sorts of assets. It wants users to be able to convert, invest, sent, pay, and redeem assets of all sorts. Crypto is the most headline-generating asset of the bunch. But Bakkt aims to handle things as diverse as fiat cash, stocks, non-fungible tokens (NFTs) and even hotel rewards points and airline miles.

The idea of a digital wallet that can store your NFTs, airline miles, tech stocks and crypto in one place is highly appealing. The concept is wonderful, no arguments there. Bakkt is also backed by financial exchange powerhouse Intercontinental Exchange (NYSE:ICE). This would lead investors to think that Bakkt could have the monetary and technical resources necessary to turn this vision into a reality.

However, as our Stavros Georgiadis pointed out, Bakkt’s blog has to slow to spotlight any new innovations with the product in recent months. The company’s lackluster (to put it mildly) financial results also speak to a company that has struggled to find a wide user base as of yet. Again, Bakkt’s concept is amazing. But, it needs a more impactful use case or way of messaging to consumers to get true widespread adoption.

Bakkt Isn’t Cheap, Even After a Steep Decline

Beware the market capitalization figures that you may see on Yahoo or other popular finance websites. At first glance, it might seem that BKKT stock has a market cap below $300 million. However, these figures fail to reflect the full amount of stock that will be outstanding following future dilution.

Once lock-up periods end and shares are converted, Bakkt will likely have more than 250 million shares outstanding, which leads to a market cap well above $1.0 billion even after the stock price’s sharp decline. Even now, shares are still trading for almost 40 times trailing revenues. It’s not like the company’s core business is growing nearly quickly enough to justify such a steep multiple, either.

It seems people either got caught up in the story, or thought the real valuation was much lower due to the lower share counts initially reported on financial websites. However, dilution is a real thing. Bakkt shareholders saw that in a real way on Dec. 16. On that day, shares plunged more than 30% in a single session following insiders registering shares of Bakkt in order to sell quickly.

BKKT Stock Verdict

There’s a temptation to see a stock down 50%, 75% or whatnot and assume it’s cheap simply because of the level of discount from its former peak. That’s understandable. If markets were really efficient, then this sort of price memory would probably be very useful information.

However, there’s a good argument that Bakkt’s initial valuation never made any sense at all. At $40 per share, for example, Bakkt had a fully diluted market capitalization of more than $10 billion. That’s an utterly ludicrous figure for a company that generated less than $50 million in revenues over the past 12 months.

Bakkt has a wonderful idea for a business. Right now, however, it is light years away from turning that concept into a popular or meaningfully profitable product. And there’s a decent chance that using crypto for everyday transactions never really takes off.

It sounds cool to have your NFTs and your airline miles in the same wallet, but the target audience for such innovation may end up being quite small. Given this current valuation, BKKT stock will need much stronger financial results to become a worthwhile trade.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.