Hot IPO Market! FTX Founder Takes a Swipe at Bakkt Valuation: Predicting a Massive Increase in Future User Numbers, Who Wouldn't?

Bitcoin futures trading platform Bakkt and mainstream U.S. exchange Coinbase have been rumored to be going public one after another. While this is seen as a positive development for the cryptocurrency industry, FTX founder Sam Bankman-Fried (SBF) does not hold a positive view on the future prospects of these two institutions, and even went on to make a comparison with FTX.

Bakkt Overvalued

In simple terms, Sam may think that Bakkt's performance in the past was not ideal, hence his disdain for the matter of going public valuation. He raised questions based on the documents Bakkt submitted to the U.S. Securities and Exchange Commission (SEC).

Bakkt aims for a $2 billion valuation, but where does it come from? Sam sarcastically commented based on the data in the image below:

The valuation, of course, comes from their "2025 estimate" of 3,000 active users and $500 million in revenue.

Sam asked, isn't the prediction for 2025 a bit too far-fetched? He answered his own question:

It is a bit far, but people usually invest based on the future, and they can draw a very convincing growth curve based on user growth... etc., are their 2020 users still zero?

Sam pointed out that Bakkt's valuation of $500 million is not justified, and even the estimated revenue for 2021 is only $55 million according to a tweet. So where does the $2 billion valuation come from? Sam provided three answers:

1. Come on, this is Intercontinental Exchange, ICE
2. Bitcoin has risen significantly, so the valuation should increase
3. Hot money is flowing into various IPOs

Coinbase Profits from High Fees

The next day, Sam also had some criticisms about Coinbase's profit model. He stated that Coinbase's revenue last year was between $10 to $20 billion, while FTX's trading volume is roughly twice that, but they can't even earn $1.5 billion. This is because their fees are four times higher than FTX's. He pointed out:

When I buy Bitcoin for $8 on the Coinbase App, the price is $40,422, but the market rate is $35,250, which means the fee is 14.5%, so the transaction fee for $8 is $0.99. When you use Coinbase API or Coinbase Prime, they don't make money, but when your high school friend decides to buy their first Bitcoin on the Coinbase App, they make money.

9) Now, I want to tread lightly here–don't throw stones in glass houses!

But I tried to buy $8 of BTC. The price I got was… $40,422.

BTC is currently trading at $35,250.

That's a 14.5% fee.

14.5% is a lot.

(Maybe people should check out FTX!)

— SBF (@SBF_FTX) January 12, 2021

Despite the criticism, Sam concluded two points:

1. Coinbase is not Bakkt 2.0, they really make money.
2. The Coinbase Pre-IPO contract on FTX may have a higher valuation.

And The Block's research director Larry Cermak also believes that Coinbase's fees are too high and the profit model is not sustainable. Sam agrees with this view and points out that Coinbase may focus more on institutional business in the future. With Sam's attention on Bakkt, it is likely that FTX will also launch its Pre-IPO product soon.