Bitkub’s drastic down round is all about crypto survival
Thai exchange’s valuation drops from $1B to $184M following investment
Bitkub is an incredible story. It absolutely dominates crypto trading in Thailand with a market share that’s probably pushing 95%, and all with very little investment and from a young, charismatic CEO.
It was on course to be a unicorn—arguably, Thailand’s first non-corporate one—following a sensational $500M investment from Thailand’s oldest bank. But that investment fell apart as the crypto market collapsed last year and now, well, things look a lot different. It’s all about survival and maybe gaming as today’s story explains.
I’ve not spent much time writing about either crypto or Thailand, so today we can present both.
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Bitkub’s drastic down round is all about crypto survival
Bitkub, the Thailand-based crypto exchange that saw a $500M investment from Siam Commercial Bank (SCB) fall through last year, took a major valuation snip following an investment deal that got relatively limited coverage this week.
The buyer is fellow Thai company Asphere, a publicly-listed 22-year-old gaming firm formerly known as Asiasoft, and it is taking a 9.22% share in Bitkub for 600 million baht. That’s around U$17M and it gives Bitkub a valuation of 6.5 billion THB or $184M.
That’s quite a comedown from the SCB deal, which valued Bitkub at over $1B and would have made it one of a handful of unicorns in Thailand. SCB would have taken a slender 51% majority ownership and, as I previously reported, helped shepherd Bitkub to IPO by mending its fractious relationship with Thailand's SEC.
It’s not uncommon to see billion-dollar businesses agree to down rounds to give them much needed funds, help existing investors or employee cash out or weather challenging markets. Indeed, Citi said just last month that a funding freeze and IPO slump means that unicorn down rounds will become somewhat common but I don’t expect many will be slashed as drastically as Bitkub.
That got me thinking, why accept the deal?
I don’t have any specific insight, but I believe there are a number of reasons.
Stating the obvious, winter is here for crypto companies.
Bitkub eked out a $9M profit last year on revenue of $80M. That’s not terrible—direct rival Zipmex went out of business as the crypto markets crashed in 2022—but it’s down significantly from 2021, a period of crypto harvest in which Bitkub clocked revenues of over $150M and a profit of $72M just from operating in one market: Thailand.
Deal Street Asia reports that things aren’t likely to get any better soon:
Asphere projects that the total revenue of Bitkub will dip by 20% year-on-year in 2023 and pick up at a growth rate of 3% in 2024, according to the SET filing.
Executives in the crypto industry will often say that they saw a downturn—or bear market—coming. But that simply isn’t true. It may have been expected at some point, but the events were triggered by the implosions of companies like 3Arrows Capital, Luna, Celsius and FTX. The sheer number of layoffs across the industry shows there was no planning for this.
Bitkub has seen its trading volume dip this year
The investment isn’t material (below 10%) and Bitkub is 100% wholly owned with no other outside shareholders. Those selling probably made a lot of money by owning crypto, but the deal represents a real world payout.
(You may recall that one company executive was found guilty of insider trading around the SCB deal, showing, perhaps, that there’s a desire to cash in from the company’s journey to date.)
The buyer is also no stranger. Asphere previously partnered with Bitkub to launch a gaming business.
The need for diversification
Indeed, gaming is one diversification that Bitkub, like other crypto companies, is chasing so, in many ways, adding a gaming firm to its ownership has its merits.
Like most crypto companies, Bitkub has developed its own chain: Bitkub Chain. You don’t have to be a cynic to question why a centralised crypto exchange needs a ‘decentralised’ blockchain… and frankly I’ve never seen it used for anything except speculative buying, and that insider trading charge.
A deeper partnership with Asphere could at least advance the narrative that the company is developing Bitkub Chain for gaming, one of the most promising use cases for blockchain even amid this crypto winter.
The deal is exactly that for Asphere, but for different reasons. Bitkub is leaning into gaming, but Asphere is leaning into Web3. I’ll save you from the exact details, but Asphere did just announce “the world’s first metaverse as a service.”
Asphere, which has a market cap of around $170M, built itself by licensing games for Southeast Asia, including Korean hit MapleStory and numerous titles from China and other parts of Asia.
It claims nearly three-quarters of revenue comes from outside of Thailand, such is its regional presence, but it suffered post-Covid. The pandemic boosted revenue as people were forced to stay in, but total sales dropped near half last year. That perhaps explain the rebrand this year and announcements proclaiming “the tremendous business opportunities that arise from blockchain technology.”
Tougher regulation ahead
Bitkub’s play to cash a little money out and diversify looks a little smarter after the country banned staking and lending products, two significant money-making lines for crypto exchanges.
This didn't come out of the blue. The SEC first floated the proposal back in September in the aftermath of the chaos that followed the unraveling of staking and lending services such as Celsius, BlockFi and Voyager.
It’s true that Thailand has shown some interest in encouraging crypto money to flow its way—including a slightly desperate-looking tax exemption for ICOs—it is very much following the crowd in terms of safeguarding investors from the chaos that was the 2022 meltdown.
It’s hard to imagine Bitkub moving overseas to offset the challenges of Thailand. And now with Binance now in town through its joint venture, times look a little more challenging.
Certainly, the dream of a billion-dollar IPO seems a long, long way away.
But hey, things could be worse—just ask Zipmex.
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