Blockchain analytics firm with SEC as a client eyes US IPO to raise ‘up to several hundred million’

Blockchain analytics firm CipherTrace, which helps cryptocurrency exchanges, banks and government agencies trace and manage money laundering risks, has plans to conduct an initial public offering (IPO) in the U.S.

John Jefferies, chief financial analyst of CipherTrace, told The Block that the firm is looking to raise “up to several hundred million” via an IPO after 2020. But before an IPO, CipherTrace will raise a Series B in H1 2020 to expand globally, said Jefferies, adding that a Series C could also be raised before an IPO.

The firm wants to first continue its “extremely high growth rate” with venture capital funding and then go public, said Jefferies. To date, CipherTrace has raised a total of $18 million in venture funding.

Jefferies declined to share valuations but said that the firm’s current revenues are $25 million and it continues to expect “exponential growth” as cryptocurrencies start to gain mass adoption and institutional acceptance as an asset class. “We have the opportunity to build the next great security company and IPO,” said Jefferies.

U.S. SEC among its clientele

California-headquartered CipherTrace hit the scene in 2015 and its top clients include Binance, the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Homeland Security (DHS), Bermuda Monetary Authority and Malta Financial Services Authority, among others, Jefferies told The Block.

“We are also working with three of the top ten global banks to help proactively identify cryptocurrency-related risks and minimize the corresponding threat exposure,” he added, not disclosing the names of the banks.

Jefferies said that CipherTrace’s competitive edge is derived from the management team’s “deep experience in eCrime, cybersecurity and payments” and “deep understanding of cybercrime adversaries.”

This year, CipherTrace opened offices in New York and Washington in the U.S., as well as in Canada, Germany, the UK and Singapore. Jefferies said the firm will continue to expand its global footprint, including expansion in South America and the Middle East.

Rival plans?

CipherTrace’s biggest competitors Chainalysis and Elliptic don’t have IPO plans yet. The former has raised $45 million in venture funding to date, while the latter has raised $35 million.

“As the leader in a quickly growing but early market, Chainalysis is in the fortunate position of not needing to plan for an IPO in the foreseeable future,” Jonathan Levin, co-founder and chief strategy officer of Chainalysis, told The Block.

He added that the firm is currently focused on “building great products for our customers by growing our data advantage, investing even more in new cryptocurrencies and multi-currency support, and continually improving our compliance and investigation software.”

Elliptic co-founder and CEO James Smith, on the other hand, said that “it is still too soon” to think for an IPO as there have not yet been any major IPOs in the cryptocurrency industry.

Chainalysis also serves the SEC, among other government agencies, such as Europol, the EU agency for law enforcement cooperation. Its other top clients include Barclays, Binance, eToro, Bitstamp, Bitpay, Gemini, Luno, Paxos, and TrusToken, Levin told The Block.

Unlike CipherTrace and Chainalysis, Elliptic doesn’t serve government agencies. “Our customers include most major crypto exchanges in the US, Europe, and Asia. This is in contrast to our competitors, who primarily service law enforcement agencies. We put the industry first, because we believe in trying to grow the ecosystem by enabling safer transactions for our customers,” Smith told The Block.

Uncorrelated revenues 

CipherTrace, Chainalysis, and Elliptic all three said that their revenue is not directly correlated to the performance of the cryptocurrency market. "Illicit finance typically uses crypto as a payment rail rather than a store of value, which is not impacted by the cyclical nature of cryptocurrencies,” said Jefferies, even though cryptocurrency exchanges pay CipherTrace “based on volume” through annual subscriptions. Individual users pay CipherTrace $30/seat for all tokens, while governments, banks, and other institutions pay based on the number of entities monitored, said Jefferies.

Elliptic’s revenue is all subscription-based, Smith said, so it does not face the same level of cyclicality as the exchanges. Levin echoed a similar view, saying: “The need for investigations and compliance software doesn't fluctuate based on price, rather it is becoming more important as regulations are introduced and clarified across jurisdictions.”

All three firms continue to grow. CipherTrace’s team has tripled in the last year and the current headcount stands at over 70 across all units, Jefferies told The Block. Chainalysis, on the other hand, has more than double of CipherTrace’s headcount at over 150, which has increased 90% over the past year, said Levin. Both Chainalysis and CipherTrace are looking for more talent to join them.

Elliptic, on the other hand, has about 70 people working for it; the figure has grown three times in the past year, said Smith.

If CipherTrace goes ahead with its IPO plans and gets listed, it would be one of the few cryptocurrency companies that has done so. Last week, crypto-friendly bank Silvergate listed its shares on the New York Stock Exchange under the ticker symbol "SI."