One of the most prominent cryptocurrency exchanges in the industry, Kraken, is reportedly preparing for a private share offering to its most momentous clients.
Making The Cut
The company has sent out an email to prospective clients, inviting them to complete a survey before they’re granted access to additional information pertaining to the offering.
The aforementioned survey needs to be completed by December 16th, 2018, and the exchange has made it clear within the email that each investor will be evaluated before being accepted to make share purchases:
“The transaction process will be done by a 3rd party service, who will run accredited investor checks, facilitate the execution of transaction documents, and the funding of your investment,”
The exchange is listing the shares at a valuation of $4 billion USD, with a minimum investment requirement of $100,000.
$4 Billion Valuation: Explained
Despite the so-called “crypto winter”, Kraken has remained a profitable company. In November alone, the exchange traded over $1 billion USD worth of Bitcoin and is currently ranked 20th on Coinmarketcap.com in terms of trade volume. Website cryptotrafficrank.com posts the exchange at 35th on its list of most popular cryptocurrency related websites.
Whilst Kraken has been noted to be much cheaper in comparison to its competition, with an impressive list of altcoins available for purchase, the demand for said altcoins has been dwindling. If this declining demand for alts continues and Bitcoin dominance prevails, the exchange would see volumes traded drop, meaning they could lose out to competition, rendering their business unprofitable.
Building Solid Foundations
In an effort to improve its services following last year’s technical drawbacks, Kraken has looked to optimize its staffing, recently firing 57 employees to reduce costs as the industry growth slows. CEO and co-founder of the exchange, Jesse Powell, commented on the recent sacking-spree, stating that it would not hinder the company’s performance:
“The cost-saving measure will have zero impact on the quality of our service.”
Earlier in the year, Kraken closed its services for 48 hours in order to update its trading engine in response to technical issues experienced during the frantic 2017 crypto-boom.
It’s clear that 2018 was a year for Kraken to tighten its operations, improve efficiency and quality of services, to improve (include another word) sentiment surrounding the company for the upcoming private share offering.
Valuation Being Questioned
Some investors are concerned over the $4 Billion valuation. One investor speculated on the company’s yearly revenue, estimating the exchange would turnover $54 million a year. If operating costs were likely to be at 60%, it’s calculated that the company would be pulling in an estimated annual profit of $32 million.
One key calculation used to measure a company’s value is the P/E Ratio. To utilize this ratio, we would divide the total price of shares (in this case $4,000,000,000) by the total earnings of available shares ($32,000,000). In this case, the P/E ratio based on Kraken’s valuation would be 125 – deemed by some as hugely overvalued, considering the historical average P/E ratio for a company being between 15-20.
The P/E ratio cannot be solely relied upon to truly indicate the value of a company – many other calculations are required to be involved in the valuation process, including the PEG ratio.
Investors Looking Optimistic
In spite of the concern surrounding Kraken’s valuation, the private share offering could be seen as a risk worth taking to many crypto-fanatic investors.
Many people are predicting the crypto markets to bottom out soon, following the 2018 price massacre. Analysts have pointed out that Bitcoin has ventured into oversold territory on the weekly RSI (Relative Strength Index), similar to the scenario at the beginning 2015, which saw bitcoin consolidate before rallying to the 2017 highs.
Amun’s Cryptocurrency ETP, which trades on the Swiss SIX Exchange (SIX:HODL) tracks the price performance of the top, most liquid digital assets including Bitcoin, Ethereum, XRP, and Litecoin. Recent data shows the trade volume of the ETP shares increased as the prices of BTC and ETH declined, insinuating that traders are anticipating a bottom for crypto prices.