Crypto Unicorn IPOs

A valuation of crypto giant — Digital Currency Group (DCG)

This post was originally published on August 21, 2019, and sent to Messari Pro subscribers.

Compared to traditional startups, crypto companies and projects have had an easier time getting their hands on cash - whether it’s through conducting a $4 billion dollar pre-launch token offering or tapping into the coffers of a founder who made a killing as an early adopter. We’ve seen a growing amount of traditional venture capital involvement in the last few years, but eventually, these companies will need to access the larger capital markets. Mining giants Bitmain and Canaan Creative filed for an IPO in Hong Kong but both have since fallen by the wayside. (Recently Canaan filed for IPO in the U.S.) As for the first major U.S. crypto company to IPO, if you asked me a year ago I would have unequivocally said Coinbase. However, since then we’ve seen tremendous turnover in their executive team with President/COO Asiff Hirji, CTO Balaji Srinivasan, and recently VP of Engineering Tim Wagner leaving the firm. You wouldn’t expect this level of churn in a company preparing to go public. Nowadays I’d say the most likely candidate is industry veteran Digital Currency Group (DCG). They have been around for a while and built three prominent businesses between Grayscale, Genesis, and CoinDesk.

But without any peers coming before it the question turns to how much a crypto company would be worth in public markets. In an attempt to answer this question we used a sum-of-the-parts (SOTP) analysis to arrive at a rough estimate. For those of you unfamiliar, a SOTP valuation is exactly what it sounds like, breaking a business into distinct segments to arrive at a value and then adding them up. Going about valuing each segment is the hard part and largely depends on the amount of information available. In this case, we decided to approximate annual revenue and then arrive at a value range by looking at the Market Capitalization/Revenue multiple of publicly traded comparable companies. Because businesses in crypto are inherently high risk, but also high reward, we took that range and marked them up a few multiples to account for that.

Grayscale Investments

First up is Grayscale Investments. Grayscale is an asset manager with $2.50 billion in assets under management (AUM). They are the provider of the well known GBTC product which mimics an Exchange Traded Fund (ETF) and have multiple flavors with exposure to Ethereum, Litecoin, XRP, and more.