Blockchain & Crypto: 2023 Valuation Multiples

Up until a few years ago, cryptocurrencies and their underlying technology—the blockchain—were set to revolutionise the way we store and secure data, how we make digital transactions and how we think of finance at its core. Today, this feels a lot more like a pipe dream, with many companies that once called themselves crypto giants collapsing under the weight of their own flawed ambitions.

Firstly, we need to clarify an important difference between blockchain as a pure technical concept and its many—especially financial—applications that have been developed over time. Blockchain refers to what is essentially a shared ledger where rows cannot be edited, only added. The decentralised nature of this ledger guarantees its reliability, as opposed to centralised-ledger systems like most traditional banking institutions.

While the banking examples is particularly easy to explain and understand, blockchain applications range from encryption, authentication and privacy to digital artwork, data storage and more. The promise behind the blockchain and cryptocurrencies’ popularity therefore has to do with the democratisation of financial institutions, increased privacy and anonymity of transactions and fraud protection.

Then why did these promises fail to deliver, despite investors and the public pouring billions—if not trillions—into blockchain-based projects over the past 10 years? Perhaps the answer lies just in how profitable some of these projects became overnight for their stakeholders.

The meteoric rise of cryptocurrencies and blockchain-based companies made them a prime target for speculative investors, who only saw these securities as a means to make a short-term gain, with their market cap exceeding their underlying value quickly and sharply, kickstarting a cycle of speculative bubbles.

The vast majority of blockchain-based businesses that are investor-backed are still private, and many of those which went public are now facing harsh backlash from legislators, largely as a consequence of a vast array of scams and fraudulent activities that have been uncovered over the years within the crypto sector.

Perhaps the most striking example of this is the collapse of crypto-exchange FTX, allegedly a Ponzi scheme at the hand of founder Sam Bankman-Fried. The scandal kickstarted yet another crypto-crash, and a sleeve of legal action from the SEC towards other industry giants, namely Coinbase and Binance.

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

Many sectors—some adjacent such as SaaS and FinTech—saw exponential growth throughout the pandemic, only to then decline as a result of investment scarcity and an adverse macro environment, but perhaps none were as drastic as blockchain.

Median EV/Revenue Multiples for Q4 2022 were only 1.9x, a nearly 40% drop compared to their pre-pandemic level.

Source: YCharts

This comes after peaking above 25x in the first half of 2021, thereafter dropping by more than 90% in the span of six quarters.

What’s more, contrary to what has happened in other sectors where consolidation means median multiples decrease while top-performers are still able to reach relatively high levels of EV/Revenue, the top performer in this cohort only reached a 12.5x revenue multiple in Q4 2022, which is still only half than the median’s 2021 peak.

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.

EBITDA multiples only accentuate the trend, with the Q4 2022 median EV/EBITDA multiple being 8.8x, less than half the same data-point in Q1 2020.

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.