Intercontinental Exchange’s Jeff Sprecher paid $1,000 for a defunct trading platform and turned it into a $75 billion enterprise. This is his strategy for placing big bets

Sprecher rapidly grew ICE by purchasing old-line markets and taking them from trading pits to online networks, rolling up the London Petroleum Exchange, home of the Brent crude contract and now ICE Futures Europe, in 2001 and the New York Board of Trade, the commodities exchange that’s become ICE Futures US, four years later. In 2014, he bought the New York Stock Exchange, adding the Chicago Stock Exchange in 2018. And last year, Sprecher launched a quest to remake the time- and paper-intensive process of qualifying for a mortgage into an A.I.-aided digital speedway, via his $8 billion purchase of cloud-based home loan finance platform Ellie Mae.  

As the Ellie Mae deal shows, Sprecher bets heavily on products in their fledgling stages that in his view are destined to become major forces in fintech. He then deploys the vast ICE trading network to broaden their reach. Money managers and analysts skewer Sprecher for pouring ICE’s gains into those pioneering ventures, which they frequently regard as overly risky and expensive. In the past, the practice has dinged ICE’s stock. Just stick with the core business that’s working, goes the Wall Street refrain.

Most of Sprecher’s most forward-thinking investments, however, have paid off big. His $5.2 billion acquisition of Interactive Data in 2015 took flak for its seemingly super-high price. But the gambit made ICE a colossus in the lucrative field of providing market data and analytics to exchanges and investors. The segment now generates roughly $700 million a year in operating income, one-fifth of the ICE total.

Among the best case studies chronicling the Sprecher get-in-early approach are his forays in natural gas and carbon allowances trading, starting when both were relatively overlooked and far from vast and global. In 2010, skeptics howled when he purchased a tiny climate futures exchange for $606 million. That franchise is now thriving as the market for climate credits explodes. Two years later, he acquired an obscure natural-gas contract that set prices for the Netherlands. The TTF has since blossomed into the reigning benchmark now that liquefied natural gas (LNG) has taken supplies to every corner of the world. ICE now dominates both natural gas and climate trading. Sprecher is also profiting from his role as a first mover in creating a platform for buying and selling Bitcoin, though the signature tokens didn’t advance as he predicted, prompting him to transform his model for exploiting crypto.

The success of these late-blooming ventures is helping propel ICE’s stock. In the past year, it’s jumped 44% to $135 a share to achieve a market cap of $75 billion, beating the S&P 500 by four points. Sprecher’s holdings in ICE stock and options have made him a billionaire.

Put simply, Sprecher’s a master at seeing around corners. I spoke to him extensively in mid-October (prior to Bakkt’s public listing) for a story on the coming IPO of Bakkt, the original Bitcoin futures venture that’s been repurposed as a broad digital wallet for consumers. Besides the new direction at Bakkt, Sprecher discussed how he foresaw the revolution in natural gas, and the rise in the market for carbon trading. Both issues are hot news: The surging price of gas is roiling the energy picture in Europe, and the role of cap-and-trade as a prime force in curbing emissions takes on greater urgency as the U.S. rejoins the Paris Agreement and President Biden and other world leaders prepare to unveil new green goals at the UN Climate Change Conference in early November.

Here are Sprecher’s insights on the three topics from our recent interview.

Trade capital for knowledge

In the summer of 2018, ICE founded Bakkt as the first fully regulated marketplace for physically delivered Bitcoin futures contracts, traded on ICE Futures US. The product enabled Bitcoin consumers to safely transform the coins into cash and vice versa, in transactions protected by ICE’s custody and clearing services. “We didn’t know where the area would evolve,” says Sprecher. “We made an investment in Coinbase early on so that its management could educate us about digital assets. The trade was that they needed capital, and we needed knowledge to set us on the right path. We became convinced that digital assets can be used as payments.”

The idea was that money managers would quickly adopt Bitcoin for ETFs and mutual funds, so that all the institutional buying and selling would curb its volatility and render the coins far more liquid. That newfound stability would make Bitcoin a widely used currency for everyday purchases. “We thought that banks and other institutions would make Bitcoin part of their payments platform, that it would become part of the bank plumbing system,” he says. But Bitcoin took a different course. The problem: The public “distributed” network can handle only around 2,200 transactions every 10 minutes, a tiny fraction of the volumes processed in credit card payments. It now costs $4 in fees to buy a $5 latte with Bitcoin, in the rare places that will take it, and those fees are about half their usual level at the moment. “The public Bitcoin network is slower than consumers expect,” says Sprecher. “It turned out that Bitcoin is bypassing the traditional networks for banking.” Contrary to Sprecher’s original vision, Bitcoin didn’t take hold as currency people put in their bank accounts alongside cash and use for buying iPods or groceries.

Instead, Bakkt charted a fresh road map by acquiring a large manager of loyalty programs and recruiting a CEO from the retail side, Gavin Michael, former head of technology at Citigroup’s global consumer bank. Its vision is enabling consumers for the first time to collect all of their loyalty points for airlines, hotels, retailers, and everywhere else on a single platform, and give those rewards a dollar value so they can be exchanged for cash or traded for points at another company––you may want to get additional points at a hotel chain by exchanging your trove from a coffee chain. The roster of companies that have signed on include Starbucks, Choice and Wyndham Hotels, and Best Buy. All of those points go into a digital wallet that also contains cash and Bitcoin, and connects to your credit card. Just hit the Bakkt app on your smartphone to open the wallet, and click to transform your Choice points to cash for buying an iPhone.

“I can’t tell you how many points I have on an airline or with hotels,” says Sprecher. “I would have to log in even to find out. Most rewards programs have been proprietary to the merchant. But the easier to use and more exchangeable companies can make their points, the more loyalty they’ll develop with customers. In the Bakkt wallet, for the first time you have cryptocurrency, rewards, and cash, and they’re all tradable.” Sprecher predicts that retailers that serve the same customers will increasingly want to partner. “You have a coffee brand that also sells its beans in a grocery chain, and both have points,” he says. “If you can use the points from buying beans for buying cups of coffee, and vice versa, you’ll spend more at the coffee shop, and then use those points to buy more beans from the grocery stores.” Merchants tell him that they’re seeking carrots that entice customers to use their points now sitting idle. “They hold these points on their balance sheets as a liability, and they want to clean up that liability to raise debt or for other purposes,” notes Sprecher. “They want to get rid of them by rewarding and attracting a certain class of customers to stimulate new revenues.”

The Bakkt wallet will also make Bitcoin trading the breeze for its members that Sprecher once envisioned for the broad public. “We’re basically putting the futures business into Bakkt, as only a service for Bakkt,” he says. “It’s part of the Bakkt brand.” The wallet holders can seamlessly transform the coins into cash over the ICE exchange at the speed of buying stocks or bonds. That’s possible because a customer is selling the coins to another Bakkt member over its proprietary network, so the transaction stays in that closed loop and avoids that public network. “Our network is much more efficient,” he says. “We can instantly convert points and Bitcoin into dollar equivalents. A customer can trade Bitcoin for points that give them three nights at a hotel, or to cash to buy Apple products.”

On Oct. 18, Bakkt went public on the NYSE. Two week later it announced a pair of deals that sent its stock skyward. It reached an accord with Mastercard that will enable its merchants to issue crypto debit and credit cards, and crypto rewards based on what people spend in the stores or online. Mastercard also operates its own separate loyalty program for merchants that will dovetail with the Bakkt platform. For example, you might have a rewards app for a quick-service restaurant on your iPhone. It will be the Bakkt network that transforms those points into Bitcoin or in the future, another cryptocurrency. Bakkt also reached an accord with payments giant Fiserv that will allow businesses to use their points and Bitcoin holdings for purchases and sales.

So how does Sprecher view Bitcoin’s future? For Sprecher, those who think the network’s slowness and high-cost form a permanent handicap are missing a big opportunity. “There’s so much capital and mindshare going into meeting that challenge that you have to believe that technology will overcome it at some point,” he notes. “You can’t wait to launch companies until you’ve solved the problem. Or you’ll be late to the game.” ICE is ready to pounce when cryptocurrencies gain broader acceptance. “All the expertise we poured into Bakkt,” he says, “will be a leg up when Bitcoin technology catches up.”

The Mastercard and Fiserv announcements sent Bakkt’s stock soaring over 100% to $22 a share from the start of trading on Oct. 25 to mid-afternoon Oct. 26. That lifted its market cap from $2.1 billion to roughly $4.6 billion. Since ICE kept all of its shares, and now owns 66% of the equity, its stake jumped by $1.6 billion. Of course, Bakkt hasn’t remotely yielded the bonanza harvested from other crypto pioneers, notably Coinbase, now boasting a market cap of $77 billion. But ICE did benefit from Coinbase’s takeoff, courtesy of Sprecher’s “educational” investment. In 2014, he bought 1.4% of Coinbase’s shares for $10 million. ICE sold its position following Coinbase’s mid-April IPO for $1.23 billion, reaping a gain that swelled its net profits for the first half of 2021 by 90%. “The $1,000 that I paid to start ICE was probably a better investment,” quips Sprecher. “But this one was amazing, unbelievable.”  

Plant the seeds

Sprecher wagered early on two products that just recently mushroomed from minor contributors to the hottest segments of ICE’s energy trading portfolio, natural gas and carbon credits. ICE’s 2001 acquisition of the London Petroleum Exchange brought the U.K. gas futures contract, then Europe’s leading gauge for pricing. But even a decade later, Europe remained a patchwork of national and regional markets. Each EU nation relied on its domestic production, or imports from pipelines to its neighbors. For Sprecher, the U.K. wasn’t the crucial venue in setting prices. It was already moving heavily from coal to natural gas and could get adequate supplies from pipes under the British Channel. The big future market was the continent. Homes and businesses in Germany, France, Italy, Belgium, and their neighbors still depended heavily on coal.

But those nations needed to turn greener as regulations tightened, and the advent of carbon allowances was poised to swell the cost of burning carbon. In Sprecher’s view, the continent would switch to cleaner natural gas in a big way. But supplies were limited because each nation depended on its own production, or supplies shipped by pipeline from nearby neighbors. The market consisted of regional and national hubs with widely varying prices. “Gas wasn’t like crude oil,” says Stuart Williams, chief of ICE Futures Europe. “There was no way to put it on a boat and ship it from the U.S. to Europe. U.S. producers were flaring excess natural gas since they had no way to export it.”

Even then, European utilities switched as much as possible from gas to coal and back again depending on which was cheaper. In 2012, Sprecher bought a controlling stake in Endex, the Dutch gas exchange. “I was criticized because it had just one contract, the one for gas,” he says. But Sprecher believed that the arrival of LNG would change the game. LNG would package gas to be shipped by sea from Russia, Norway, or the U.S. “We were planting the seeds,” he says. “We believed that with LNG, the natural-gas market would globalize.” Sprecher predicted that since the U.K. had mainly made the transition, the nations still using lots of coal would absorb the world’s extra gas supply every time the coal price spiked or its rival’s cost dropped. As the “marginal” buyer, Holland, France, Germany, and the other continental nations would set the world price. “It’s those continental buyers that balance the world market,” says Williams. They positioned the Endex contract, the TTF, to become that global benchmark, the mark Brent sets in crude.

“At the same time, Europe was standardizing regulations to move from separate national hubs to a single gas network by linking the pipelines,” says Williams. “We thought that would help create a big continental marketplace.” By around 2017, the TTF had taken the crown as the global benchmark for natural gas. LNG became what Williams calls “a virtual pipeline for the world.” Sprecher posited that demand for gas in Europe would soar. “It was clear that Europe would have a huge need for natural gas as it gets off coal,” he says. “Natural gas is more clean-burning than coal and heavy oil. With the cost of carbon allowances rising, the market is moving that way.”

Sprecher believes natural gas has a strong future as a bridge to renewables. “It’s becoming more accepted as an interim step,” he says. “The U.K. is moving to electric cars by 2030. They’ll need to generate electricity to fuel that infrastructure quickly. We see natural gas playing a role.” Hence, he adds, “the market is much more interested and active around natural gas.” For Sprecher, gas is the archway that will save Europe from blackouts and brownouts as the energy world shifts to a new, green generation.

Today, Europe’s a booming market for natural gas, a trend that’s greatly benefiting ICE. After the long lockdown, restaurants, stores, and other businesses are once again keeping shoppers warm. China, hobbled by a severe coal shortage, is importing record volumes of LNG. Plus the weather conspired to further swell the imports priced in ICE’s TTF contract. The winter on the continent was much colder than normal, and the wind in Britain, a major source of the nation’s electricity, didn’t blow with its usual bluster. “All of those factors combined to deplete stocks of natural gas and create a shortage that pushed prices far higher,” says Williams. “It’s a perfect storm of supply and demand dynamics.”

Since the start of 2021, the price of a TTF contract has jumped from $10 to $87. ICE is trading a surging volume of contracts, and natural gas is on track to become a big contributor to its energy book. In 2019, the TTF was generating $85 million in revenues, less than 9% of ICE’s total from energy trading. Goldman Sachs estimates that the number will hit $187 million or 16% of the total this year, and leap to almost $300 million by 2023, rising to one-quarter the figure for its gigantic Brent contract. According to Williams, the TTF on ICE now accounts for “well north of two-thirds” of all trading in European natural gas.

Be in the solutions business

Sprecher saw a strong likelihood that Europe and the U.S. would adopt a market solution to curbing greenhouse emissions. “It was clear that people wanted a transition to greener energy sources, and at the same time I saw the beginnings of a marketplace where capital markets would put a price on emissions,” he says. “I thought those green shoots would grow.” The platform that lured Sprecher was little more than a pilot project in Chicago called the Climate Exchange. In 2003, Sprecher partnered with the fledgling operation, and in 2005 the European Union established a landmark system that pointed to an epic future for trading green credits. That year, it adopted its carbon allowance system, known as the EUA, that’s still by far the world’s largest contract for buying and selling credits. “The idea was to charge a price tied to each ton of carbon an enterprise emits, and reduce that ‘cap’ over time to make the cost of that ton more and more expensive,” says Williams. “That template is incredibly efficient. It drives new investment into newer and cleaner energy. Companies must adopt the higher costs of technology and equipment that generates green energy to avoid the burden of purchasing the allowances.”

Still, the EUA and emissions markets were pip-squeaks compared with the commodities trading that powered ICE. In 2010, Sprecher shocked Wall Street by purchasing the Climate Exchange for $606 million. Two years earlier, he’d introduced the RGGI futures contract for emissions allowances required in a region that encompasses New York, New Jersey, Massachusetts, Virginia, and seven other states. And in 2012, ICE added California Carbon Allowance trading that prices emissions for the Golden State. Though ICE held a dominant position in all three contracts, trading in credits remained subdued, and its revenues in the sector as recently as 2017 was just $47 million.

But starting in 2020, the business began the liftoff that Sprecher long predicted. The European Union is on the cusp of increasing the scope of its economy covered by the regime from 40% to 80%, in part by adding the transportation and shipping industries that were previously excluded. Another booster rocket: Britain’s departure from the EU forced it to exit the EUA and initiate its own national system called the U.K. Allowance regime. The U.K. government chose ICE to trade the UKA contracts. The futures started trading only in May but have already surpassed RGGI as the world’s third-largest market for carbon credits behind the EUA and the California allowances.

“Moving from 40% to 80% coverage in Europe is prompting more companies to hedge their exposure to the carbon allowances once they’re covered,” says Williams. The combination of tightening caps and the looming demand from companies that will soon need credits is sending prices jumping. Since the start of this year, the EUA futures price for a unit of carbon emissions has jumped from $26 to $58.

Today, ICE controls an estimated 95% of all the world’s carbon trading. Finally, that big share is translating into significant revenues and promising to become one of ICE’s strongest growth engines in energy. Goldman Sachs projects that environmental revenues will hit $118 million this year, up 20% from 2020, then keep advancing at a 20% clip in the years ahead, reaching $170 million in 2023. By then, Goldman predicts, carbon and natural-gas trading will contribute a combined $462 million in revenues, growing from 16% of ICE’s energy total in 2019 to 35%.

For Sprecher, an environmental strategy that embraces natural gas in the transition, and deploys carbon credits that provide the right market signals for charting a green future, is a sound one. “It’s all coming at a time when a younger generation of consumers, who grew up wanting a greener economy, want a stronger voice,” he says. Sprecher saw their power coming early on. That insight enabled Sprecher to spot the green shoots—which are now sprouting green for ICE and its shareholders.

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