Investment Tagline: Leading global cryptocurrency exchange with the largest European market share and second-largest US volume

ABOUT KRAKEN

Kraken Digital Asset Exchange is one of the world's largest and oldest bitcoin exchanges with the widest selection of digital assets and national currencies. Founded by Jesse Powell in 2011, Kraken has emerged as a central figure in cryptocurrency trading, with a user base exceeding 13 million globally and supporting trading in 190 countries. The exchange is consistently rated the best and most secure digital asset exchange by independent news media, appealing to both experienced and inexperienced traders.

Over the past few years, cryptocurrency trading has entered the mainstream, attracting both retail investors and institutional funds. Kraken holds the largest TTM market share in Europe and is the 2nd largest exchange in the US after Coinbase, with a spot market share of approximately 10%. The company has achieved remarkable milestones including becoming the first cryptocurrency company to receive a U.S. banking charter in Wyoming (September 2020), giving Kraken access to federal payments infrastructure and positioning it to create unique products at the intersection of fiat and cryptocurrencies.

Kraken has benefited from the recent cryptocurrency market bull run, having surpassed $1 billion in daily trading volume and $1 billion in annualized revenue as of August 2021. The company has raised $130 million+ to date, with notable investors including Blockchain Capital, HOF Capital, Hummingbird Ventures, SBI Investment, and Tribe Capital. According to a Bloomberg interview with CEO Jesse Powell from April 2021, the company is on track to go public in H2 of 2022. With cryptocurrency market volumes in September 2021 reaching 10x those of September 2020, Kraken is well-positioned to benefit from the ongoing crypto boom.

MAIN SOLUTIONS/PRODUCTS

KEY INVESTMENT FEATURES

• Dominant Market Position: Kraken holds the largest TTM market share in Europe and ranks as the 2nd largest exchange in the US with approximately 10% spot market share (vs ~20% for Coinbase). The platform serves 13+ million users globally across 190 countries with $1 billion+ in daily trading volume, making it the exchange of choice for seasoned traders and institutional investors who value high-quality customer service, security, and advanced functionality.
• First-Mover Advantage in Crypto Banking: Kraken became the first cryptocurrency firm in the U.S. to receive a banking charter (September 2020), acquiring a special purpose depository institution (SPDI) license in Wyoming. This gives Kraken access to federal payments infrastructure, enabling unique products at the intersection of fiat and cryptocurrencies. The company has a promising roadmap including crypto credit/debit cards, index funds, qualified custody status, and Kraken Ventures for early-stage investments.
• Attractive Valuation Entry Point: The entry valuation of approximately $12 billion represents significant upside potential with fundamentals suggesting a fair market value of ~$16 billion (33% upside). The valuation is 4x less than publicly traded peer Coinbase, which trades at a 13.7x Price/Sales multiple compared to Kraken's implied 11.2x based on estimated TTM revenue of $1.1 billion. Base case exit valuation projects $21.1 billion with 1.8x gross return within 12-24 months post-IPO.
• Strong Revenue Growth and Profitability: Kraken's estimated revenue grew from $1.1 billion (2021 TTM) to projected $2.0 billion by 2023, representing over a 7x increase from 2020 performance. Based on August 2021 trading volumes, Kraken exceeded $40 million in monthly revenue and $10 million in EBITDA, demonstrating sustainable profitability. The company's TTM trading volume of $450 billion represents approximately 40% of Coinbase's volume, yet trades at a significant valuation discount.

MARKET OPPORTUNITY

The cryptocurrency asset class has grown to over $2 trillion in total market capitalization, with the cryptocurrency market experiencing 154% CAGR between 2016 and 2020. Current daily trading volumes are 20x higher than 2019 averages, driven by the coronavirus pandemic, inflation fears, and increasing mainstream adoption. Institutional demand is growing at an especially fast pace thanks to regulatory changes that have eliminated instability and ambiguity.

Kraken is well-positioned to benefit from this boom, with September 2021 YTD volumes reaching 10x those of September 2020. The trend plays in Kraken's favor given its leadership position among sophisticated traders and institutional investors. Over the long-term, the cryptocurrency market is likely to further appreciate as decentralized finance (DeFi) products enter the mainstream and more institutional dollars flow into the ecosystem. Ark Invest suggests that modest institutional involvement could boost Bitcoin prices by $200,000-500,000, which would only enhance Kraken's positioning as a leading global exchange.

STRATEGIC ADVANTAGES

Product and Technology Advantages: Experienced cryptocurrency traders consider Kraken one of the highest-quality exchanges globally due to its 63 supported currencies, expansive 190-country reach, top-tier security, clear data and reporting, fast withdrawals, and relatively low fees. Many beginner users who start on Coinbase graduate to Kraken once they appreciate the importance of a more robust product. Kraken is also favored by institutional investors for near real-time hyper-personalized support, industry-leading API rate limits, OTC trading, and futures trading with up to 50x leverage.

Banking Charter and Innovation: Kraken's U.S. banking charter (first in crypto) provides access to federal payments infrastructure, setting the stage for unique products at the intersection of traditional finance and cryptocurrencies. The company has promising initiatives including crypto credit/debit cards, index fund products, revamped mobile app, qualified custody status, crypto IRA offering, and Kraken Ventures venture capital arm. This capacity to innovate and attack new verticals distinguishes Kraken from pure-play exchanges.

VALUATION ANALYSIS

Kraken's entry valuation of approximately $12 billion represents significant upside potential compared to its fundamental value and publicly traded peers. The valuation is 4x less than Coinbase's current market cap of approximately $67 billion (as of October 2021), despite Kraken's trading volume representing 40% of Coinbase's. A $20 billion valuation would match the relative market cap comparison, representing 65% upside from entry.

Fundamentals suggest Kraken can currently claim a fair market value of ~$16 billion (33% upside). Coinbase trades at a 13.7x Price/Sales multiple based on TTM revenues, while Kraken's entry valuation implies a discounted 11.2x multiple based on estimated TTM revenue of $1.1 billion. Moreover, Coinbase traded at a $100 billion market cap immediately following its April 2021 IPO (55.3x P/S multiple), which suggests substantial upside potential for Kraken post-IPO.

Base case projections estimate an exit valuation of $21.1 billion (1.8x gross return), assuming 2023 revenue of $2.0 billion and a 10.4x P/S exit multiple (vs 13.7x for Coinbase). Bull case scenario projects $43.7 billion valuation (3.7x return) assuming 24% revenue CAGR and 18.7x exit multiple. Even in a bear case where the crypto bull run ends and trading volumes drop, the investment maintains upside due to the large margin of safety at entry valuation.

MANAGEMENT TEAM

Jesse Powell, Founder and CEO: Jesse is a 20-year veteran of the digital currency industry, having founded a firm assisting players in online games with account management and in-game currencies in 2001, following Bitcoin since its first launch. After visiting Mt. Gox following its 2011 security breach, he began developing Kraken as a replacement platform. This proved fortuitous timing, as Jesse launched Kraken in 2013, the year prior to Mt. Gox's shutdown. His experienced management team stands at the origins of the crypto boom and has successfully navigated multiple market cycles. The leadership team also includes Steve Hunt (VP of Engineering, formerly CTO at Jump Trading and VP at Goldman Sachs), Marco Santori (Chief Legal Officer, recognized authority in digital currency law), and David Ripley (COO, formerly Boston Consulting Group and founder of Gildera).

SELECT INVESTORS

Kraken has attracted backing from leading cryptocurrency and fintech investors including Blockchain Capital, Digital Currency Group, Hummingbird Ventures, Money Partners Group, HOF Capital (also invested in Stripe, Pipe, SoFi, and Klarna), Electric Capital, 6ixth Event (also invested in FTX, Bitwise, BlockFi), BluePointe Ventures (also invested in Carta, Rappi, Cohesity), and Spacestation Investments. The company has raised $130 million+ to date, with the latest round closed in April 2021 adding Frontline One and Preipo Club to the cap table. This investor syndicate represents deep expertise in cryptocurrency markets, financial services infrastructure, and scaling technology platforms. The quality of investor backing validates Kraken's market leadership position and long-term growth potential in the rapidly evolving cryptocurrency ecosystem.

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