Confidential - Do not share without permission
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Confidential - Do not share without permission
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Performance
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Kraken is one of the world’s longest-standing and most secure crypto platforms. Globally, Kraken clients trade more than 200 digital assets and 6 different national currencies.
Memo Highlights
Confidential
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Highlights
We’re investing in Kraken, a major crypto platform, focussed on security. They are currently generating $1.5B/yr in revenue and growing their $665B/yr trading volume at 46% CAGR. Given the current administration's support for crypto & blockchain innovation by reducing regulatory barriers, combined with their growth potential in the US and consumer arm of their business, we believe there’s an opportunity to generate a 2.4 - 4x return from their potential 2026 IPO (assumptions below).
In 2024, Kraken generated $1.5B revenue (28% CAGR) trading $665B (46% CAGR) and will soon reach over 15M users. Their EBITA was $380M, which at a $7.5B valuation places their multiple around 19.7x. Coinbase’s revenue in 2024 was $6.6B, with an EBITDA of $3.3M and at a peak market cap of $86B (currently $50B), this placed their multiple at 26x (currently 15x). By 2025, Kraken plans to grow their EBITDA to over $800M and if they grow another 50% in 2026, their EBITDA could reach $1.2B at the time of their potential IPO. Based on these assumptions: If using Coinbase’s multiple of 15 - 26x, Kraken could IPO at a valuation of $18 - 31B, generating a return of 2.4 - 4x return.
We believe Kraken is currently undervalued. They generate 22% of the revenue of Coinbase but have 11 - 15% the valuation (depending on the fluctuating Coinbase market cap). This suggests Kraken is currently 1.5 - 2x undervalued. This is likely due to higher presence in Europe (35% market share) but US expansion is a key priority.
Kraken’s ARPU (annual revenue per user) is 3x higher than Coinbase’s as they have more institutional clients, but they are rapidly growing their consumer arm, growing 5x in 4 years and now making nearly a third of their revenue. Kraken has a large amount of cash (reportedly close to $1B) and there are rumours of a financing round this year, valuing the company at close to $10B.
Despite the attention, crypto adoption is still in its infancy ($3.5T) vs gold ($18T) & equities ($50T) so we believe there’s still plenty of upside for key undervalued players.
The cryptocurrency market faces critical challenges in accessibility, security, and regulatory compliance. Traditional exchanges often prioritize speed and volume over user protection, exemplified by Binance’s 2019 $40M hack (2). Meanwhile, decentralized finance (DeFi) platforms remain complex for mainstream users, limiting adoption. Additionally, geographic restrictions and fragmented fiat-crypto on-ramps hinder global participation (2,6).
Kraken addresses these pain points through a multi-pronged approach:
As a centralized exchange, Kraken primarily generates income by charging fees for trades on its platform, making it less dependent on the performance of any single cryptocurrency. Its emphasis on security, advanced trading tools, and global reach attracts both retail and professional traders. Beyond spot trading, Kraken has moved into margin trading and futures while staying alert to new developments in blockchain, such as staking and NFT marketplaces. This willingness to offer the latest crypto services helps Kraken maintain a reputation for innovation in an increasingly competitive environment.
Kraken’s pursuit of cutting-edge services is demonstrated by its early adoption of margin trading, the introduction of staking options (now restricted in the U.S. following regulatory actions), and the support of parachain auctions. Meanwhile, its subscription-based Kraken Pro platform, launched in December 2022, targets experienced, high-volume traders with lower latency and more comprehensive analytics. Kraken’s platform combines trading, staking, and DeFi innovation into a unified ecosystem.
Kraken has multiple paths to expansion. Ongoing crypto adoption increases trading volume overall, while Kraken’s inclination toward rapid product innovation ensures it can capture revenue from emerging blockchain applications. The exchange’s entry into blockchain and self-custodial wallets suggests that it recognizes the potential in asset tokenization, which could one day include real estate and other tangible assets. Moreover, through its Special Purpose Depository Institution (SPDI) charter, Kraken is positioned to further explore banking services—an avenue that may provide revenue diversification and allow it to serve as a more complete financial platform for both fiat and crypto assets.
Kraken is positioned to capture three key growth vectors:
Regulated Banking: SPDIC license enables custodial services, USD deposits, and stock trading (2).
DeFi Adoption: Ink could replicate Coinbase’s $53M revenue from Base (Q2 2024) (4).
Staking Expansion: 950% YoY growth in staking volume (2021) suggests untapped demand (2).
Kraken demonstrates robust growth and market penetration:
Kraken’s main competitors include Binance, which has commanded a significant portion of the global market but faces regulatory scrutiny, and Coinbase, another U.S.-based exchange that competes directly with Kraken for American customers. Companies like Robinhood are also venturing more deeply into crypto, leveraging mainstream trading platforms to draw new users into the market. Kraken competes in a fragmented market dominated by:
Binance: Largest volume, global reach but regulatory scrutiny, past security breaches (2, 6)
Coinbase: User-friendly interface, strong brand but higher fees, limited DeFi integration (6)
KuCoin: Low fees, wide asset selection but smaller liquidity, regional focus (6)
Kraken’s Edge: Regulatory licenses, cold storage security, and Ink’s hybrid model differentiate it from rivals (2, 4).
The leadership team balances crypto expertise with operational rigor:
The crypto market faces a paradigm shift:
Kraken’s Niche: Acts as a “crypto finance house” bridging retail, institutions, and DeFi (2).
Kraken benefits from a long-standing increase in the number of cryptocurrency users worldwide. Global ownership of crypto wallets rose from fewer than 1M in 2013 to around 580M million by the end of 2023, with an estimated 46M owners in the United States alone. While cryptocurrencies have experienced cyclical market volatility over the past decade, user adoption has continued its upward trajectory. This expansion of the crypto user base underpins Kraken’s core revenue model, as more users ultimately lead to more trades and thus more transaction fees.
Three catalysts align for Kraken:
Regulatory uncertainty poses one of the biggest challenges to Kraken. Beginning in 2022, the SEC stepped up its oversight of cryptocurrency exchanges, resulting in actions like the February 2023 settlement that shut down Kraken’s U.S. staking service and levied fines against the exchange. Another concern is the potential for margin compression, as trading fees could erode if competitors reduce or eliminate fees to gain market share. Market volatility is also a constant issue: if cryptocurrency prices and trading volumes plummet, Kraken’s transaction-based revenue suffers accordingly.
Memo
We’re investing in Kraken, a major crypto platform, focussed on security. They are currently generating $1.5B/yr in revenue and growing their $665B/yr trading volume at 46% CAGR. Given the current administration's support for crypto & blockchain innovation by reducing regulatory barriers, combined with their growth potential in the US and consumer arm of their business, we believe there’s an opportunity to generate a 2.4 - 4x return from their potential 2026 IPO (assumptions below).
In 2024, Kraken generated $1.5B revenue (28% CAGR) trading $665B (46% CAGR) and will soon reach over 15M users. Their EBITA was $380M, which at a $7.5B valuation places their multiple around 19.7x. Coinbase’s revenue in 2024 was $6.6B, with an EBITDA of $3.3M and at a peak market cap of $86B (currently $50B), this placed their multiple at 26x (currently 15x). By 2025, Kraken plans to grow their EBITDA to over $800M and if they grow another 50% in 2026, their EBITDA could reach $1.2B at the time of their potential IPO. Based on these assumptions: If using Coinbase’s multiple of 15 - 26x, Kraken could IPO at a valuation of $18 - 31B, generating a return of 2.4 - 4x return.
We believe Kraken is currently undervalued. They generate 22% of the revenue of Coinbase but have 11 - 15% the valuation (depending on the fluctuating Coinbase market cap). This suggests Kraken is currently 1.5 - 2x undervalued. This is likely due to higher presence in Europe (35% market share) but US expansion is a key priority.
Kraken’s ARPU (annual revenue per user) is 3x higher than Coinbase’s as they have more institutional clients, but they are rapidly growing their consumer arm, growing 5x in 4 years and now making nearly a third of their revenue. Kraken has a large amount of cash (reportedly close to $1B) and there are rumours of a financing round this year, valuing the company at close to $10B.
Despite the attention, crypto adoption is still in its infancy ($3.5T) vs gold ($18T) & equities ($50T) so we believe there’s still plenty of upside for key undervalued players.
The cryptocurrency market faces critical challenges in accessibility, security, and regulatory compliance. Traditional exchanges often prioritize speed and volume over user protection, exemplified by Binance’s 2019 $40M hack (2). Meanwhile, decentralized finance (DeFi) platforms remain complex for mainstream users, limiting adoption. Additionally, geographic restrictions and fragmented fiat-crypto on-ramps hinder global participation (2,6).
Kraken addresses these pain points through a multi-pronged approach:
As a centralized exchange, Kraken primarily generates income by charging fees for trades on its platform, making it less dependent on the performance of any single cryptocurrency. Its emphasis on security, advanced trading tools, and global reach attracts both retail and professional traders. Beyond spot trading, Kraken has moved into margin trading and futures while staying alert to new developments in blockchain, such as staking and NFT marketplaces. This willingness to offer the latest crypto services helps Kraken maintain a reputation for innovation in an increasingly competitive environment.
Kraken’s pursuit of cutting-edge services is demonstrated by its early adoption of margin trading, the introduction of staking options (now restricted in the U.S. following regulatory actions), and the support of parachain auctions. Meanwhile, its subscription-based Kraken Pro platform, launched in December 2022, targets experienced, high-volume traders with lower latency and more comprehensive analytics. Kraken’s platform combines trading, staking, and DeFi innovation into a unified ecosystem.
Kraken has multiple paths to expansion. Ongoing crypto adoption increases trading volume overall, while Kraken’s inclination toward rapid product innovation ensures it can capture revenue from emerging blockchain applications. The exchange’s entry into blockchain and self-custodial wallets suggests that it recognizes the potential in asset tokenization, which could one day include real estate and other tangible assets. Moreover, through its Special Purpose Depository Institution (SPDI) charter, Kraken is positioned to further explore banking services—an avenue that may provide revenue diversification and allow it to serve as a more complete financial platform for both fiat and crypto assets.
Kraken is positioned to capture three key growth vectors:
Regulated Banking: SPDIC license enables custodial services, USD deposits, and stock trading (2).
DeFi Adoption: Ink could replicate Coinbase’s $53M revenue from Base (Q2 2024) (4).
Staking Expansion: 950% YoY growth in staking volume (2021) suggests untapped demand (2).
Kraken demonstrates robust growth and market penetration:
Kraken’s main competitors include Binance, which has commanded a significant portion of the global market but faces regulatory scrutiny, and Coinbase, another U.S.-based exchange that competes directly with Kraken for American customers. Companies like Robinhood are also venturing more deeply into crypto, leveraging mainstream trading platforms to draw new users into the market. Kraken competes in a fragmented market dominated by:
Binance: Largest volume, global reach but regulatory scrutiny, past security breaches (2, 6)
Coinbase: User-friendly interface, strong brand but higher fees, limited DeFi integration (6)
KuCoin: Low fees, wide asset selection but smaller liquidity, regional focus (6)
Kraken’s Edge: Regulatory licenses, cold storage security, and Ink’s hybrid model differentiate it from rivals (2, 4).
The leadership team balances crypto expertise with operational rigor:
The crypto market faces a paradigm shift:
Kraken’s Niche: Acts as a “crypto finance house” bridging retail, institutions, and DeFi (2).
Kraken benefits from a long-standing increase in the number of cryptocurrency users worldwide. Global ownership of crypto wallets rose from fewer than 1M in 2013 to around 580M million by the end of 2023, with an estimated 46M owners in the United States alone. While cryptocurrencies have experienced cyclical market volatility over the past decade, user adoption has continued its upward trajectory. This expansion of the crypto user base underpins Kraken’s core revenue model, as more users ultimately lead to more trades and thus more transaction fees.
Three catalysts align for Kraken:
Regulatory uncertainty poses one of the biggest challenges to Kraken. Beginning in 2022, the SEC stepped up its oversight of cryptocurrency exchanges, resulting in actions like the February 2023 settlement that shut down Kraken’s U.S. staking service and levied fines against the exchange. Another concern is the potential for margin compression, as trading fees could erode if competitors reduce or eliminate fees to gain market share. Market volatility is also a constant issue: if cryptocurrency prices and trading volumes plummet, Kraken’s transaction-based revenue suffers accordingly.