Everything you need to know about a potential Kraken IPO
Oliver Brett June 21, 2021 8:49 AM
As the appetite for cryptocurrency continues, Kraken, an exchange that facilitates Bitcoin and gives traders access to dozens of other alternative coins, is considering its IPO options.
What does Kraken do?
Kraken is one of the world’s most popular cryptocurrency exchanges. It gives retail traders access to all the major cryptocurrencies, while supporting seven major “fiat” (traditional) currencies.
Account holders can link their bank accounts directly to Kraken accounts to facilitate their trades. They can also move funds from Kraken directly to digital wallets hosted by third-party providers.
According to coinmarketcap.com, which ranks Kraken in the top five crypto exchanges, it supports 69 cryptocurrencies and frequently handles daily trading volume in excess of $1 billion.
Providing marginIt also scores highly for average liquidity by coinmarketcap.com, which – as of June 21, 2021 - gave it an “exchange score” of 8.5, placing it behind only Binance and Coinbase and alongside Huobi and Bitfinex.
Unusually for the crypto world, it provides margin to facilitate leveraged trades. It scores highly among independent assessors for its high security, low fees and advanced trading features. However, it is not recommended for beginners and its customer service is described as “questionable” by Motley Fool.Based in San Francisco and established in 2011, Kraken’s trading operations formally launched two years later. It is owned by Payward Inc. and is headed by CEO and co-founder Jesse Powell.
How does Kraken make money?
Cryptocurrency exchanges like Kraken make money through a fee structure. Although customers are not charged membership or subscription fees, they are charged between 0.9% and 1.5% fee for an “instant buy” of cryptocurrency.
Alternatively, Kraken operates a “maker-taker” fee structure on traders signing up to a Kraken Pro account, with reductions to customers providing large trading volume. You can think of these as trading commissions.Similar fees also apply to its futures offering, and it also charges fees for providing margin.
It offers institutional accounts for investment banks, brokers and hedge funds but has suspended its “dark pool” offering. This, a separate order book not visible to the rest of the market, allowed traders to anonymously place large buy or sell orders without revealing their interest to other traders.
What is X's business strategy?Kraken seeks to reinforce its reputation as a secure option in a world where cyber-hacking is a constant threat and can cause severe reputational damage.
It is also one of the major names in the crypto space pushing the message that Bitcoin is a safe-haven asset or “digital gold” in a world where national administrations are beginning to look beyond the dollar as a de facto store of value.In early 2021, Kraken launched an app that intends to directly appeal to a younger demographic, while keeping them motivated and engaged through educational journeys. It provides affiliate marketing opportunities to all account holders
Jeremy Welch, Kraken's vice-president of product said: “The Kraken App is a major step toward bringing the world-changing potential of crypto to anyone and everyone. For us, it shows our commitment to making crypto more accessible.”
Is Kraken profitable?As a private business, Kraken has not released its revenues or profits in the public domain. Thus, it would be a matter of pure speculation as to whether the business is profitable.
As a clue to how the sector has performed of late, Kraken’s rival Coinbase said it brought in $1.8 billion in revenue during the first three months of the year, up from $191 million in the same period a year ago.Profits at Coinbase jumped to $771 million from $32 million. It was the company’s first earnings report since it went public last month.
How much is Kraken worth?In February, 2019, Kraken announced that it had raised $100 million in a direct offering to its largest customers at a $4 billion valuation.
While Kraken has not publicly discussed its valuation since then, at one point in the spring of 2021 media outlets were reckoning it might seek a valuation of $20 billion in an upcoming IPO.However, this was at a time when excitement was building ahead of Coinbase’s IPO, which proved to be an underwhelming affair. Since then, though not as a direct consequence, cryptocurrencies have performed poorly.
Negative sentiment in crypto is far from ideal for exchanges, even if trading volume has the ability to show short-term spikes .
Who owns Kraken?Kraken is wholly owned by Payward, Inc. which is regulated by the U.S. Security and Exchange Commission and incorporated in the state of Delaware.
Who are the senior staff at Kraken?Kraken does not provide any public listing for its key personnel or board of directors. According to Crunchbase, the following individuals have major roles at the company:
- Jesse Powell, co-founder and CEO
- David Ripley, chief operating officer
- Bob Zagotta, chief commercial officer
- Nicholas Percoco, chief security officer
- Kaiser Ng, chief financial officer
What do we know about Kraken’s IPO plans?Jesse Powell had previously indicated his exchange was considering a public debut via direct listing in 2022. But then he saw what happened with Coinbase and started having second thoughts.
That’s not surprising. Valued at $68.1 billion shortly moments after its much-hyped direct listing in April 2021, Coinbase, the largest US exchange by volume, lost a huge chunk of that value in the days and weeks that followed.Powell believes Coinbase’s difficulties in holding on to that initial valuation stem from the specific attributes associated with direct listing.
Unlike a traditional IPO, in which bankers have greater control over the pricing process, a direct listing allows more of the price discovery to happen organically by the market.
In a direct listing, existing shareholders are crucially not prevented from selling their shares at debut and that can mean a larger supply of shares go on sale. This, in turn, can push the price downward.
The typical IPO model, on the other hand, normally places restrictions on how many shares can be dumped on the market by existing shareholders.
According to Fortune magazine, which spoke to Powell on its Balancing The Ledger podcast, Kraken’s consideration of a more traditional-style IPO instead of a direct listing is “…especially striking because it would presumably include more input from the usual Wall Street bankers in its road to a public debut.”
It went on to state: “Crypto proponents have been among the most acerbic critics of financial institutions. The direct listing process is in many ways more true to the ethos of crypto."
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