Blockchain & Crypto: 2022 Valuation Multiples

Blockchain technology has been around for over a decade now. Originally created as a distributed ledger to record Bitcoin transactions, its applications and uses have since grown and expanded to a much wider range.

When talking about blockchain today we are not just referring to bitcoin and cryptocurrencies anymore, but to a whole technological landscape built on top of this technology, from encryption, authentication and privacy to digital artwork, data storage and more.

A huge number of tech companies have tried to make a business out of this new promising tool, but because of the range of different business models that have been built on such a new technology it can be hard to quantify their valuation purely based on financial metrics.

The vast majority of blockchain-based businesses that are investor-backed are still private, and as we are still in the early stages of blockchain adoption most of them are still pre-profit (if not pre-revenue).

In order to get a benchmark of how much the average blockchain business can be worth, we looked into a cohort of public companies that disclose metrics which allow us to infer their valuation relative to revenue and profit, hence their multiples.

In order to select a cohort of public blockchain companies, we looked into the composition of the Global X Blockchain ETF (BKCH) — an exchange-traded fund by Mirae Asset Financial Group. The Fund invests specifically in 25 public blockchain companies “including companies in digital asset mining, blockchain & digital asset transactions, blockchain applications, blockchain & digital asset hardware, and blockchain & digital asset integration.”

Using financial data aggregator YCharts, we looked into the valuation, revenue and EBITDA of the 25 companies and used that to identify the range and trends for valuation multiples in the blockchain sector.

Blockchain Valuation Multiples

While blockchain technology is over a decade old, its adoption really took off within the last couple of years, accelerated by the COVID-19 pandemic.

As many new technologies, blockchain was met with skepticism in its early days — especially while it was mostly associated with cryptocurrencies — but the rise of new ways to harness its capabilities, along with endorsement from some of the most high-profile investors and entrepreneurs, helped it grow its median revenue multiple by eight times in just one year.

Following a similar trend as adjacent sectors such as SaaS and FinTech, median revenue multiples for blockchain companies went from around 3x in Q1 2020 to over 40x in Q1 2021. Multiples then fell back to the floor throughout 2021, with the latest recorded median revenue multiple for 2021 being just 7.6x.

Source: YCharts

While less than a fifth of its peak, this revenue multiple is still higher than comparable tech sectors, and perhaps—with many crypto companies making their very first revenues last year—this decrease in multiples could simply indicate 2020 investors’ bets paying off.

From the chart below — which shows the range and Interquartile Range of multiples within the cohort — we can see that the top performers achieve revenue multiples as high as 200 to 300, often with high volatility over time.

However, these are likely outliers as the vast majority of the cohort stayed well below the 50x mark, even in Q1 2021 when the median multiples were at the highest.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.

When looking at profit metrics — namely EBITDA — the trends are very similar to those of revenue multiples. Starting below 20x in Q1 2020, median EBITDA multiples rapidly doubled to 35x and even 50x in Q3 2020, before falling all the way to 20x throughout 2021.

It must be noted, however, that less than half of the 25 companies in our cohort publish their EBITDA, largely because the remaining ones are still not profitable. Because of this, the statistical significance of this analysis is not particularly high.

However, EBITDA multiples are useful to understand what a profitable company in the blockchain space could be worth.

Source: YCharts

Looking at the distribution of EBITDA multiples within the cohort, we notice a slightly lower variance than the Revenue ones, which is surprising given that the sample is only 12 companies, but potentially shows how valuation metrics for more established, profitable companies can be calculated more reliably than their pre-profit counterparts.

Source: YCharts In the chart above, the lines indicate the range of EV/EBITDA multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.