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Kraken

Cryptocurrency exchange and bank
Pre-IPO
Medium risk

Estimated revenue in 2019-2020

Invest in Kraken

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Investment Idea Details
About the company

Kraken, a United States-based cryptocurrency exchange, provides access to trading between 40+ digital assets. Kraken is the fourth-largest crypto exchange by trading volume. It has nearly 7 million clients globally and was founded in 2011 in San Francisco, California.

Over the past year, Kraken recorded a surge in business growth and the number of new users that signed up on the platform. In the first quarter of 2021, the number of new users jumped four times, compared to the second half of 2020. In addition, spot trading volume in Q1 grew 1.5 times over spot trading volume recorded throughout 2020 to reach a record level of $160 billion. In comparison, trading volume on Coinbase was $335 billion in Q1 2021.

There has been a rising interest in cryptocurrency adoption among corporate players. Several investment banks have set their price target for bitcoin. Guggenheim Investments predicts that it will reach $400,000 over a short period of time, while Citibank believes bitcoin should be worth $300,000.

Market Opportunities

In April 2021 the value of the cryptocurrency market topped $2 trillion for the first time. In just over two months, the market capitalization of the cryptocurrency market has doubled. Bakkt Holdings, the digital-asset financial firm, estimates that the market of digital currencies will increase to $5.1 trillion by 2025.

The crypto market has been seeing rapid growth over the past year, encouraging exchanges to go public. Kraken’s major rival in the US Coinbase became public via direct listing on the 14th of April. Jesse Powell, the CEO of Kraken confirmed that Kraken is looking at different ways of going public but would “probably” opt for a direct listing later this year in early 2022.

The crypto market has been seeing rapid growth over the past year, encouraging exchanges to go public. Kraken’s major rival in the US Coinbase became public via direct listing on the 14th of April. Jesse Powell, the CEO of Kraken, said that Kraken would “probably” go public through a direct listing later this year in early 2021.

Additionally, Powell said that the company is in talks with investors regarding a new funding round. Noting that Kraken has a strong balance sheet, Powell added that the company is not in a rush to raise capital. Kraken is currently in talks with investors for a new round of funding, which could reportedly value it at as much as $20 billion. In the interview to Bloomberg TV at the beginning of March, Powell said he would reject a $10 billion valuation, and suggested the company could raise double that—which appears to confirm Kraken is seeking the higher valuation. A valuation of $20B corresponds to $90-100 share price.

Risks

Sources of Kraken’s revenue are dependent on crypto assets and the broader cryptoeconomy. Due to the highly volatile nature of the cryptoeconomy and the prices of crypto assets, its operating results have, and will continue to, fluctuate significantly. The future development and growth of crypto is subject to a variety of factors that are difficult to predict and evaluate. If crypto does not grow as expected, Kraken’s business, operating results, and financial condition could be adversely affected.

It is possible that Kraken will close a new funding round at a lower valuation that was anticipated earlier due to overall market volatility and the performance of Coinbase shares.

Kraken is subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or its failure to comply with, any laws and regulations could adversely affect brand, reputation, business, operating results, and financial condition.

Financials and Valuation

Kraken has raised a total of $119 million in funding over 8 rounds from 11 investors including Digital Currency Group (invested in Coinbase, Luno, Curv), Blockchain Capital (invested in Coinbase, Bitnet) and others. Their last funding was raised in May 2020 at $4 billion valuation.

Based on public information on trading volumes and fees, we estimate that revenue of Kraken amounted to $100-$200 million in 2019 and grew to $300-$400 million in 2020. Kraken shares are worth $73 on the secondary market, which suggests a valuation of $14.6 billion. The company can be compared with Coinbase, which went public in April 2021. It is currently trading at 48x LTM sales with a market capitalization of $60 billion. The trading volume on crypto exchange Kraken over the past 12 months has amounted to $200 billion. In comparison, the trading volume on Coinbase — $400 billion.

Kraken’s projected market capitalization, given it maintains the current growth trajectory, will amount to $30-40 billion on the public market within a year. Estimated return on investment — 150%.

How Venture Investments Work
1. Searching for Companies

United Traders analysts are in continuous search for OTC offers studying financial reporting, companies’ businesses, their future plans, analyzing them as potential acquisition targets or estimating prospective multifold capitalization increase as well as considering risks that may hinder business growth. The best ideas are offered to our investors.

Publication
25 Sep
Minimum Amount
1 share
2. Buying shares

As part of our service for purchasing shares on the over-the-counter market (pre-IPO, OTC), for its traders and investors United Traders buys units in funds that own equity stakes in private companies. These funds make early-stage investments in private companies or acquire equity stakes from employees of such companies.

Shares Outstanding
Limited
3. Public Offering

United Traders will have shares at its disposal after the IPO. The shares can be sold after the established 6-month Lock-up period. Alternatively, the shares can be hedged for the above period. Prior to the company going public United Traders look for exit options in the OTC market. If we find a great offer, we sell the shares.

Public Offering Date
Pending
Estimated Gains
+150%
4. Taking profit

After the Lock-up period is over, the investment in pre-IPO or OTC will be automatically closed, and generated profits are credited to your account less the applicable UT fees. We offer an opportunity for investors with over $100,000 invested in a specific idea to search for a counterpart in the OTC market individually and to take profits before the company goes public and thereby exiting the trade prior to the Lock-up period expiration.

Exit
̴ 2021
Early Exit

Although it is prohibited to sell shares within the Lock-Up period, our traders find ways to take profits for our investors using various financial instruments: forwards, options, short selling trades, etc.

For an investor the above means that the pre-IPO or OTC investment may be exited after paying a part of its value, usually around 15% which is caused by highly-priced instruments used to close the position. To do so, you should press the respective button in your members area as soon as it becomes active.

The exiting process is similar to making a new investment. You submit a request, we execute it within 1 business day, and your investment is closed at the current exchange price.

Fees

ENTRY FEE

3.5% of the share purchase amount. The fee is charged at confirmation of your investment bid.

EXIT FEE

0.5% of the share sell amount after the trade. The fee is charged at the investment exit.

SUCCESS FEE

20% of the profit gain. The fee is charged only if the trade is profitable at the time of exiting.

EARLY EXIT FEE

Usually a 15% fee is charged subject to the actual situation at the exchange. The fee is calculated individually for each investment.

What Are the Benefits of Investing with United Traders?

WE ARE A RELIABLE PARTNER

Our risk managers will support you throughout the entire transaction life.

HIGH PROFITABILITY

Venture investing is very risky as they involve new or growing companies, and multifold increase in capitalization is expected. We prioritize companies at the pre-IPO stage as they already demonstrate strong financial indicators and plan to go public soon. This approach allows limiting hyper-risks related to insolvency of new companies and substantially increasing profits as compared to investors who buy shares through a subscription just before the IPO.

LOW ENTRY THRESHOLD

To buy the OTC stocks, one would need millions of dollars. We gathered a pool of traders and investors allowing everyone interested to join similar transactions with as much as $10.

Risks

United Traders is experienced in minimizing risks but a future investor should be aware of all risk types:

  • Illiquidity. There is a possibility that early exit from this investment will take more than 1 month.
  • Asymmetric information. Management and current investors have access to more internal information about the company than other market participants.
  • Time uncertainty. There is no information regarding next financing round or exit strategy timeframe (IPO or M&A).
  • Share dilution. The issue of additional shares by a company may reduce the value of shares of existing investors.

Invest in Kraken

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