Now that Coinbase’s direct listing is long done and dusted, attention is turning to other cryptocurrency exchanges that might feel emboldened to make a stock market debut.
Meanwhile, in late July 2021, Robinhood had its long-awaited IPO, trading on the Nasdaq and achieving a valuation of $31.8bn (£22.8bn).
Initially scheduled for the third quarter of 2021, eToro’s plan to go public through a merger with a special purpose acquisition company (SPAC) named FinTech Acquisition Corporation has been delayed to later in 2022, due to a decline in demand for the SPAC’s shares. It is expected to list on the Nasdaq.
This article will tell you all about Kraken IPO. How do I buy shares on the Kraken? Let's read on.
Kraken’s turn in the spotlight
What remains to be seen is whether a Kraken IPO is in the works and how much Kraken stock would be worth when compared with the likes of Coinbase.
The trading platform’s CEO, Jesse Powell told Fortune in June 2021 that, while he hoped to make the platform public in 2022, he was more inclined towards an initial public offering (IPO) to raise cash, rather than a direct listing.
By opting for a direct listing – which entails the sale of existing rather than newly issued shares – instead of an IPO, Coinbase eschewed the usual investment banking underwriters, but got some criticism for doing so.
On its first day of trading, Coinbase’s president, CEO and CFO sold 63%, 71% and 100% of their shares respectively. Early venture capital backer Union Square Ventures also sold its entire position.
Coinbase listed only days after Bitcoin reached its current all-time high and after it reported a nine-fold, year-on-year increase in first-quarter revenue. The company closed its first day’s trading almost $80 above its reference price, at $329.28.
Kraken is going public – yes or no?
So, what will this mean for the feverish demand for Kraken IPO news and any prospect of a Kraken IPO date?
Despite announcements in June that an IPO would take place by the end of 2021, the trading platform is yet to complete an S-1 filing with the US Securities and Exchange Commission (SEC) – the crucial first step in ensuring that a Kraken initial public offering gets the green light. This document is also vital for prospective investors because it offers a valuable insight into the company’s current financial situation and the risk factors it faces going forwards.
If and when Kraken shares emerge, we still don’t know whether they will be via a traditional IPO or a Coinbase-style direct listing. The CEO’s comments suggest that it may well end up being the former, contrary to what people have tended to believe previously. Back in June, Powell appeared to rule out any prospect of an eToro-style SPAC deal, declaring that the current value of Kraken stock means that it is “too big” to explore such an approach.
Kraken IPO: what valuation are we looking at?
Assuming that Kraken stock is coming to an exchange near you some time soon, the inevitable next question concerns the valuation that this trading platform might end up securing. While Kraken is currently valued at around $10bn, reports indicate that the company has high hopes of achieving a $20bn valuation. This is substantially less than the $100bn valuation Coinbase was seeking.
Powell believes that Kraken’s unique selling point, when and if the IPO does take place, will be the fact the exchange’s banking licence has been granted by the US state of Wyoming, a notoriously lax state in regard to crypto regulation. “Users will also be able to link their bank account to their crypto account. So you have everything in view,” Powell said.
The crypto exchange also recently announced that it now supports Apple Pay and Google Pay in the Kraken app, making it easier for customers to buy crypto.
Last year, Kraken reported that it would follow in the footsteps of Coinbase by expanding into Europe by the end of the year. Powell told German publication Handelsblatt: “We are working on a licence in an EU country”. A successful expansion would no doubt impact the valuation of the company favourably.
Overall, the threats associated with a Kraken IPO very much mirror the ones that Coinbase faces. For example, we already know that there was some alarm surrounding the statistic that 96% of Coinbase’s revenue comes from transaction fees – with analysts arguing this wouldn’t be sustainable in the long run.
There are predictions that we could end up seeing rival crypto exchanges starting to slash their fees in an attempt to entice a broader cross-section of customers, and this would be nothing short of calamitous from a profitability standpoint. Kraken is a relative minnow when compared with the likes of Coinbase and Binance, and may find it harder to withstand such market pressures – especially if it doesn’t have a suite of products that can help offset the decline in revenues that arises from fee compression.
As we’ve seen already with Coinbase and MicroStrategy, Kraken shares may also be overexposed to volatile movements in the erratic crypto markets. This may make it difficult to evaluate the stock fundamentally.
Kraken IPO news
Then again, there is an argument that a Kraken IPO could learn from some of the lessons that were seen after Coinbase’s direct listing – avoiding some of the potential pitfalls that may emerge. COIN’s first-mover advantage means that it made history by launching on the Nasdaq, but it also had to overcome some of the challenges that successors may face.
And it doesn’t help that Powell – who is direct and plain-speaking during his broadcast interviews – openly acknowledges that the crypto sector could end up facing a series of seismic changes in the coming years.
Speaking to CNBC, he warned that regulatory uncertainty surrounding digital assets would continue to linger for some time yet, warning: “Something like that could really hurt crypto and kind of kill the original use case, which was to just make financial services accessible to everyone.”
That wouldn’t just kill off the original use case for cryptocurrencies – it could end up striking at the very heart of Kraken’s business model.
Towards the end of 2021, Kraken bought Staked, a cryptocurrency staking platform, for an undisclosed sum. The acquisition of Staked has played an important role in Kraken’s race to dominate US markets. After a highly successful period of growth, with infrastructure-heavy investment decisions, Kraken has become a major player in the US for staking services. The period of rapid growth in 2021 is demonstrated by a combined spot and future volumes increase by 400% more than in 2020.
However, in January 2022 a stock market selloff was taking its toll on pre-IPO valuations. Pitchbook reports: “Many investors who planned to buy secondary stakes in unicorn-valuation companies have withdrawn their existing bids or hit pause mode on making new transactions, according to Greg Martin, managing director at Rainmaker Securities, a brokerage specialising in sales of pre-IPO companies.
“We are also starting to see new bids at discounted prices,” Martin added. Companies whose prices dropped significantly include Impossible Foods, TikTok parent ByteDance and cryptocurrency platform Kraken, he said.
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